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Can I get a business loan to buy a business? – 5 ways to finance a business purchase

Brad OConnor

August 18, 2021

 

Most business acquisitions are financed in one way or another. Sometimes, it’s possible to purchase a business using two or three different types of financing. There are many ways to secure funding for this big purchase, and here are our top five picks!

1. Use your savings

This is one of the most common ways to finance a business purchase, by using money that you have already saved. This helps you minimize your debt and reduce the financial risk. However, not everyone is able to save up enough cash to purchase a business, which is totally okay! There are many other ways to secure funding for a business acquisition.

2. Traditional Bank loan

A traditional bank loan might seem like a simple solution, but getting approved for one can sometimes be tricky, especially for business acquisitions. If you are looking to obtain a bank loan to finance your business purchase, you must have a very good or excellent credit score and existing personal assets with significant value.


3. Seller Financing


First of all, what IS seller financing? Seller financing is a special type of loan where the individual selling the business accepts a portion of the purchase price in installments, in order to facilitate the sale process. In a similar way to a bank loan, the terms of the agreement, including interest rate and timescale need to be officially documented in a legally binding contract. If you find a business that you would like to purchase that is offering seller financing, a down payment would be made, followed by monthly payments at the previously agreed upon rate until the purchase price is fully paid. If a seller is willing to offer financing, it can be seen as a sign that they believe in their business as well as its long-term growth prospects.


4. Leveraged Buyout


Choosing to purchase a business using this method involves leveraging the assets of the business that you are buying to help finance the purchase. Assets could be anything from inventory to equipment and property and can be used as collateral to make funding the purchase more feasible. This allows you to pay back the purchase amount more slowly, over a longer period of time.


5. Find a passive investor


If you cannot afford to purchase the business on your own, finding an investor who does not wish to be involved with daily operations is another option to explore. Finding a passive investor would allow you to buy and operate the company, while you pay a percentage of ongoing profits to your investor. This is very similar to seller financing, but in this scenario, you aren’t in debt, and payments are based on the continued success of the company.


There are many ways to finance a business purchase, so it is important that you do your research to determine the best fit. If you have any questions about buying or selling a business, contact our office today!




More questions?  We can help.

EVALUATION/CONSULTATION


If you are a business owner considering selling a business, and would like to learn more about OConnor Business Brokers and Consultants and the services we offer, please contact us to arrange a confidential business evaluation. 

You will meet one of the Directors of OConnor Business Brokers, and your requirements will be discussed. During the meeting you will have the opportunity to find out more about selling a business, and how our business brokers and M&A Advisors can assist you with the business sale process. 

Unlike many other approaches, OConnor Business Brokers start without any preconceived ideas about what is right for you and for your business. By understanding the business and your motivation we can help steer you in the right direction. This often challenges conventional thinking and comes as a refreshing change to the norm.


The Directors of OConnor Business Brokers have experience as business brokers, business consultants, M&A advisors, and business owners. We understand the challenges and pressures that face a business at any one point. We therefore use our time together not to try and sell you our services but to help you understand your options and how we can help.


An initial meeting lasts approximately one hour, and can take place virtually or in person at our office.



Evaluation and Consultation Request

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