Business Acquisition Financing - Securing A Business Acquisition Loan
Financing for a business acquisition can actually be easier than
getting start-up money for a new business. You are purchasing a
business that already has tangible value. All business loans are
considered high risk, but that value makes your loan less of a risk for
the borrower. You must now assure the lender you are able to repay the
loan on time.
Before you make application for your acquisition loan you must know
exactly what you are buying. If the current owner is interested in
selling his business, you need to get financial reports and a
prospectus on the company’s value from the owner. If you’re looking to
acquire a business the owner hasn’t offered for sale, you must make a
valuation of your own from public records and any other information you
can obtain.
You must then decide how much you can personally pay toward the
purchse. Your payment should cover 20% or more of the acquisition cost.
If your cash flow won’t cover that amount, look for investors to
provide the rest of the capital to make up the difference. The lender
requires you to put your money into the acquisition in addition to the
loan they fund.
The company you are purchasing will have an established operating
model. Unless you make changes, this business method will continue and
income will remain the same. In that case you won’t make much profit on
your investment. The lending organization will want to see your plan to
increase the asset’s value. Be prepared to show your plan for improving
and/or expanding the current business model, increasing the value of
your purchase.
Now you can begin applying to various lenders. They will require
information on your asset base, the value of the company you want to
purchase, the current business plan and your plans for
changing/improving the business. Each lender will have an application
requesting your personal credit information and your business finances.
They may also want a history of your business experience (which you can
include as part of your business acquisition plan.) You need to
demonstrate how your new plan for the business will earn profits on the
investment to repay the lender. Applying at several lending
institutions will allow you to get the best rate possible on your
acquisition loan.
Each lender will then verify the information you have provided and
complete a valuation of their own on the proposed purchase. They will
consider your personal and financial history and the business plan you
have proposed. If your information is accurate and the lender feels
that it is worth their risk, you’ll receive funding. Answer any
questions the lender may have during the underwriting process. Be sure
to fully answer the questions and give them additional information when
needed in order to procure your loan.
One or more of the lenders will undoubtedly consider making you the
acquisition loan. Then you can accept the best offer given. Now you
have the opportunity to begin your new business and improve its
profits--and yours.
|
Small Business Grants and Loans for Women
|