How to Buy and Fund an Existing business
Financing an existing business is among the biggest barriers for entrepreneurs and would be entrepreneurs to acquire a business. Buying an existing business is less risky than starting from scratch. Many of the unknowns are knows in an existing business. Customers, vendors, employees, location, and profitability are all known and discoverable in the due diligence process. By doing an adequate job of due diligence, you have a very good idea of what to expect and how to manage your risk accordingly. The only real downside to buying an existing business is the cost compared to a start-up; however, start ups are producing zero revenue and have no track record. An existing business has a history on revenue and cash flow that makes them bankable.
Bankable businesses are ones that banks and others will invest in for a reasonable return that is supported by the historical performance of the business. Smart business purchasers use leverage to get the controlling interest in their acquisition. Commercial loans will generally fund about 75% of the purchase price with payments spread out for up to twenty years. Collateral and a personal guarantee is usually part of the deal. Alternative sources are available but will come with higher interest rates and higher cost. The Small Business Administration (SBA) encourages small business lending by guaranteeing 75% of the loan. SBA loans are about the best deal you can get, if you have the time and can get through the hurdles required.
There are other alternative non-banking solutions that can loan very quickly, but at higher than traditional loans. Always go for traditional loans and SBA loans first. If time or circumstance doesn’t allow the traditional loan sources, there are other lenders or using you can use your 401(k), 403(b), or IRA account or other pension fund. There are special rules that waive taxation and penalty if you use specially designed trust to facilitate your business acquisition.
You can also pursue SBA funding at a later date after acquiring your business using alternative methods. If you desire to own a business or need money for your existing business, we can help. Our lending sources offer merchant cash advances, unsecured loans, lines of credit, invoice factoring, SBA funding and hard money loans. Call or apply online and we will connect you with the right funding solution. We can fund based on 3 years tax returns and bank statements to make the process fast and easy.