One of the many ways to make money in the business world is to buy an existing company. To do that, you need some funding, which commonly involves a loan for a small business. Here’s what you need to know about pursuing a small business loan to acquire another company.
What Do Lenders Consider When You Apply for A Business Loan?
A lender that issues a loan for a small business typically wants to see evidence that the borrower can pay back the loan on time. You’ll likely need to present income documentation, such as paycheck stubs. If you work independently, you’ll need to provide tax return information and a cash flow statement. Additionally, you may need to report your level of debt. The most important factor in getting the loan application approved is your personal credit score.
If you currently own a business and are looking to expand it with an acquisition, the lender will assess your business credit score. The lender may also request a financial statement, tax returns, and your company’s bank statements. Other items the lender might request include your business plan, licenses, financial projections, and the value of the company you seek to acquire.
Things to Do Before Applying for A Business Loan
Where can you get a business loan?
The Small Business Administration (SBA) recommends consulting with an accountant and attorney to figure out the fair market value of the target firm you wish to purchase. These experts can help you negotiate a deal with the right wording for a letter of intent to purchase an enterprise. They will also clarify any questions you have about tax issues.
A useful approach in preparing for the loan application process is to ask yourself some basic questions. What percentage of the purchase price are you able to pay upfront? Be aware that lenders typically require a 10 percent down payment. How much collateral do you have to back the loan? If you cannot afford to lose an asset, it should not be used as collateral.
Prior to submitting a loan application, examine your current credit score. If you have a low credit score, you may want to first take steps to raise it in the coming months. There are various ways to boost your credit score, such as paying off debt by operating on a tighter budget.
Additional Ways to Finance Buying A Business
One of the key lending sources for a small business is the SBA, which issues loans and lines of credit. Companies most likely to secure these loans earn $150,000 in annual revenue and have a business credit score of at least 600.
Some buyers are successful by negotiating directly with the seller. Other financing options include borrowing from friends and partnering with investors.
Get Started On Your Small Business Loan Today!
A business usually only gets off the ground if it has sufficient funding for a few years. Contact our team at Economic Development Collaborative for more information on getting a suitable loan for small businesses that reflects your company goals.
