Business Acquisition Loans are simply business loans designed specifically for funding another company or franchise. If you have a thriving small business with at least one partner, you can also apply for this kind of loan for a partnership buyout. Business acquisition loans are available to new business owners, existing business owners looking to acquire an opportunity for expanding their business, and even companies looking to attract investment. In many cases, they are used as an equity injection method by private equity firms. Still, today business acquisition loans are offered in almost every financial market, and there are many different business acquisition loans available from virtually any bank or other lender.
One of the most common business acquisition loans available today is a three-year commercial hard money loan. This kind of financing provides seed funding for your new business, and the cash is usually returned with a two-year interest rate on the principal amount. The business acquisition loans are made based on the property’s sale price only; the loan is not considered a debt consolidation loan. The hard money business acquisition loans are not usually repaid until the business owner sells the property within two years.
Another prevalent form of business acquisition loans is provided through a franchise loan program. In this financing model, a company with an existing business uses the franchise to obtain capital used to purchase or construct a new location. In most states, this financing is limited to two years. Unlike the hard money business acquisition loans, the franchisee does not repay the franchise financing in full until the existing business is sold. In most states, the funding is refunded upon the sale of the current industry.
In addition to these two primary sources of funding, there are other secondary funding sources for many businesses. They include personal savings, stock loans, and bank loans. Typically, borrowers who obtain small business acquisition loans do so using their savings. They have two options – they can repay the loan early or roll the balance over into savings. Most lending institutions offer attractive interest rates on these types of loans.
Another way to obtain low-interest rates on business acquisition loans is by applying for seller financing. This can be accomplished by purchasing an existing structure, such as a mobile home and utilizing the seller’s equity to fund the purchase. Some sellers will allow you to use their equity to purchase their house free and clear. Others require that you prepay a certain amount of money before you can take possession of the structure. Even if you cannot pay the seller off entirely at closing, the system may still provide valuable financial support during the transition period.
If all else fails, business acquisition loans can also be obtained using another type of secured loan, such as a business valuation loan. A business valuation determines the value of the collateral (usual property) that would be used to secure a business acquisition loan. Using the business valuation as collateral allows you to obtain the loan at a substantially lower rate than if you applied for an unsecured loan. However, business valuations are not a common collateral application because the appraisal often involves more documentation and can last up to two months.
One of the most popular ways of obtaining business acquisition loans is to submit a successful application with the Small Business Administration (SBA). The SBA works closely with lenders to provide an unsecured alternative to traditional bank financing. Because of the SBA’s strict guidelines, many lenders prefer to partner with the SBA when funding. The SBA evaluates its ability to repay the loan based on its balance sheet, current cash flow, and collateral (usually property).
To find the best rates on business acquisition loans, business owners should use an online lender source. Utilizing a lender comparison website will provide business owners access to multiple lenders with their websites. Each lender offers different loan products to small business owners. The website will allow business owners to compare business loan quotes and complete application forms from one place. Once a business owner has located the lender offering the best rate, they can submit an online loan application and walk away with the funds they need to grow their company.