Business experts often say that it costs less to buy an existing business than building one from scratch. If you are an employer looking to buy a business, there are some points to consider when seeking financing for the acquisition that will strengthen its viability as a candidate for loans and their ability to exploit a variety of possible sources of funding.
Most lenders want to review your business plan and should also determine the economic and business value that you are considering. Review the financial statements and consider the possibility of your bank and / or trusted financial advisor as a review of the numbers. Determining the value of the company, including equipment, real estate, inventory and other assets.
To increase its viability as a candidate for loan, convey their industry experience and management know-how to your potential lender. Lenders look for candidates that have strong potential for success after acquiring the business. Show lenders that the transition will run smoothly, and consider keeping the existing managers on staff to help ensure a smooth transition. Experienced staff can also help you learn the inner workings of the company and help ensure extended contracts with existing customers.
When seeking financing, consider these lending sources:
* Family, friends or “angel” investors. Lenders will likely expect the buyer to provide between 20 percent and 50 percent of the capital upfront. If you do not have the initial capital to invest in the business, consider borrowing from family and/or friends. Another option may be “angel” investors–wealthy individuals who make equity investments in businesses at the early stages. They typically have expertise in the fields of businesses in which they invest and can also offer their resources and contacts.
* Seller financing. Consider asking the seller if he or she can provide financing for the sale of all or some of the business. In some cases, sellers may provide a very reasonable interest rate. Some seller financing can also prompt other lenders to invest in the venture.
* U. S. Small Business Administration. Many lenders across the country offer small-business loans guaranteed by the U.S. Small Business Administration (SBA). These loans may provide more lenient and flexible financing for qualifying borrowers.
* Financial institutions. While the industry is still in the midst of a tight credit market, the fundamentals for loan qualification remain important. They include demonstrating positive cash flow, solid management experience, industry expertise and a strong credit report. Banking relationships are also a significant part of the equation. It is important to cultivate and maintain a relationship with your banker, keeping him/her well-informed about your business experience within a particular industry. Many banks, also have special lending programs for women-, minority- and disabled-veteran-owned businesses.
Be prepared and stay informed on the search for financing for an acquisition. It is not uncommon, especially in a tight credit market, employers looking for a variety of lending sources.