When purchasing a business, there are a few crucial factors you should consider before initiating the process. What you need to do is present yourself as a strong and viable loan candidate and take advantage of a wide variety of financing options available to you.
So, what does it take to increase your viability as a loan candidate and bring your goals to fruition?
It is essential that you demonstrate your skills and industry expertise and convince a potential lender of your ability to succeed. Typically, lenders look for candidates who can prove that they will benefit enormously from acquiring a business. How do you ensure that the transition process will run smoothly? Will you keep existing managers on staff? Did you surround yourself with savvy and reliable professionals who will help you facilitate the process? Have you reviewed your credit before inviting a lender to review? Do you have the necessary liquidity to provide a sufficient injection? Don’t forget that you also need a solid and well-thought-out business plan that outlines your course of action.
You should do your homework and clearly identify the value of the business you are about to purchase. Spend an adequate amount of time reviewing the financials and performing a sufficient amount of due diligence. You may benefit from joining efforts with a trusted financial advisor who will analyze the numbers and help you effectively assess the value of the business. Keep in mind that you may also need to ascertain the value of real estate, inventory, equipment and other assets.
Securing capital for an acquisition can be a daunting process. Below are a few viable lending sources to take into account when acquiring a business:
- Family, friends or “angel” investors
Be prepared to invest between 20 % to 50% of the capital upfront. That’s what most lenders expect from buyers. In case you are short on funds and not ready to invest the required amount, turn to family and friends for help. As an alternative, you may consider partnering with some wealthy individuals (also known as “angel” investors), who will not only provide the funds, but also offer their contacts and expertise and guide you in the right direction.
- Small Business Administration (SBA)
Turning to SBA may be a smart way to finance your business acquisition. Small-business loans guaranteed by the U.S. Small Business Administration may provide flexible financing for qualifying borrowers. If you have strong credit, can demonstrate positive cash flow and solid management and industry expertise, you may be able to initiate relationships with financial institutions and benefit from some of the lending programs they offer. Please note that they may have great programs for women, minorities or veterans.
- Seller financing
You can also ask the seller if he or she can provide financing and help you successfully complete the process. In fact, some sellers may offer a reasonable interest rate or encourage other lenders to invest in the venture. Interestingly, this may be the simplest form of financing a business purchase.
It is important to keep in mind that whatever option you choose, you have to cover all your bases, gain as much knowledge as you can about the business acquisition process and take advantage of various financing options. Sadly, some business owners are unaware of all the financing sources available in the market and miss out on the opportunity to own their own business. Furthermore, all business transactions are open to negotiations.
To discuss your business valuation needs, please call 623-295-9620 or email email@example.com today. Looking forward to speaking with you!