Flexible Business Acquisition Loans

  • May 9, 2022

Thinking about expanding your business or purchasing a new one? Unless you’ve got stellar cash flows or have been squirreling away capital for the past ten years, you’ll likely need a loan to make this business acquisition possible. 

Fortunately, you’ve got options, with some of the most popular loans offering low fixed interest rates and longer repayment periods that’ll give you the freedom needed to grow your business while paying it off. This article will explore a few ways you can acquire a new business without depleting the capital you already have.

Types of Business Acquisition Loans

Business acquisition financing covers a broad range of loans with varying purposes, repayment terms, interest rates, and creditworthiness requirements. 

SBA Loans

SBA 7(a) and SBA 504 loans are the most flexible financing for business acquisitions. They’re guaranteed by the federal government, which allows them to offer very low interest rates with longer repayment periods. One drawback to them is that the approval period is much longer, as you’ll need approval from the Small Business Administration and the bank issuing the loan. 

SBA 7(a) loans require the borrower to put up 15% of their own money for loans valued at less than $150,000 and 25% for anything over that up to a maximum of $5 million dollars. Interest rates are variable, with a repayment period between 10 and 25 years. 

SBA 504s are similar but have a maximum value of $15 million dollars and a fixed interest rate. They’re typically used for purchasing real estate and other tangible assets. Many business owners use an SBA loan to cover the bulk of a business acquisition and find smaller funding sources to make up the difference. 

Alternative Lenders

Even if the government and traditional banks turn you down for financing, there are still a few options for getting funding for a business acquisition. Online lenders will often underwrite loans that others wouldn’t, though they’ll likely have higher interest rates to hedge against default. Repayment terms can be generous, similar to SBA loans that can be paid back over 10 years or more. 

Conventional Term Loans

These are the kind of loans you’d get from a traditional bank where you pay in fixed installments over a set period of time. Interest rates are somewhat higher than SBA-backed loans but lower than with alternative lenders. They are usually for smaller amounts and have some strings attached –– they’re only enough to cover the value of tangible assets that can be sold off if you can’t pay back the loan. Term loans also have shorter repayment periods, usually around five years. 

Construction Loans

Building projects tend to go over time and over budget. Construction loans can help businesses bring projects over the finish line. With down payments ranging from 10% to 30% and post-construction options for floating or fixed rate financing, these loans can be an excellent option for business owners looking to expand operations. At Avana Capital, we offer options to refinance for lower rates and longer-term repayment. Learn more about Avana’s construction loans today

What Can Business Acquisition Financing Be Used For?

Business acquisition loans are just for purchasing new businesses or franchises. These are some of the most common purposes for obtaining business acquisition financing.

Acquiring a Business

As would be expected, the primary purpose of a business acquisition loan is to finance the purchase of an existing business. The business serves as collateral for the loan; however, most businesses are a complex mix of assets, employees, and intangible property, so you’ll still need to put down a fair amount of your own money to get financing.

Buying Out a Partner

In addition to purchasing an entire company, business acquisition loans can be used to buy out a partner in your own company. Since buying out a partner doesn’t create any new revenue streams, obtaining financing from traditional banks is challenging.

Purchasing Non-Tangible Assets

Traditional banks usually have no problem funding the purchase of tangible assets like real estate and high-value equipment that can be sold in the event of a default, but what about things like brand name, copyrights, and software. To finance these expenses, you’ll need a business acquisition loan backed by the SBA or an alternative lender. Intangibles are simply too risky for most banks to get involved with.

Four Key Things You Need To Get a Business Acquisition Loan

Depending on the type of loan and lender you use for your business acquisition, there may be different eligibility requirements. However, there are some specific things that are required for any business acquisition loan application. 

1. Valuation and Financial Statement of the Business

Lenders need to know what the business you’re purchasing is worth and proof that it brings in enough revenue to cover your payments. Financial statements will include tax returns, profit-loss statements, and cash flow statements.

2. Letter of Intent

To acquire an existing business, you’ll need proof that the previous owner is willing to sell it to you and the price they’ll sell it at. Have the seller draft a letter of intent to lay out the sale’s terms.

3. Business Plan and Revenue Projections

Not only must you present the business’s past financial history, but you’ll also need to make some predictions about where it’s headed once it’s yours. A business plan will demonstrate that you know how to run a profitable business that generates enough revenue to make your loan payments.

4. Down Payment and Collateral

Lenders need to know you’ve got skin in the game, so most will ask for a down payment of 10% or more. If the acquisition involves assets like real estate and high-value equipment, the business itself can act as collateral. However, if the lender doesn’t think the business could be easily liquidated, they’ll want further collateral that could be sold if you were to default.

Buying a Business With AVANA Capital

Traditional banks are often the first choice for those looking to get a business acquisition loan, but these loans are the hardest to qualify for and have the least flexible repayment periods. SBA 504 loans are another option that offers more flexibility and lower interest rates. AVANA Capital’s SBA 504 loans are the perfect way to finance your new business venture without digging into your current working capital. 

AVANA Capital’s financing requirements make it easy for you to apply for business acquisition loans and get approved. Let’s work together to find the best solution for your business. Contact us today to learn how we can make your next business purchase as fast and effortless as possible!

 

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