Small Business Acquisition Financing: 3 Options

  • December 13, 2020

Financing the acquisition of another small business can ensure the longevity of your brand. Yet, many entrepreneurs have little to no idea where to secure the funding they need to succeed. Others are trying to break into the marketplace for the first time and need to know how to secure a loan to launch the company of their dreams. Entrepreneurs who want to acquire financing should always review all available funding options before making important financial decisions.

Business owners looking to master small business acquisition financing should pay attention to the following tips. Here is a detailed exploration of how to fund your future small business acquisition, whether it involves securing a 7(a) loan from the Small Business Administration or soliciting cash from a private investor.

Small Business Acquisition Financing Options

Entrepreneurs should consider many different financing options before making a final choice. Some financing options originate in the public sphere, and some come from the private sector. A bridge loan is a popular short-term option from the private sector that many business owners rely upon until they can secure a heftier, long-term financing option for a bigger acquisition in the future.

Bridge Loan

Bridge loans are ideal for business acquisitions that need to be executed quickly, as these loans can be secured in a timely fashion compared to public options. Most bridge loans have a fast closing process that can be managed in a few days, enabling entrepreneurs to make sudden financial decisions when a valuable yet fleeting opportunity arises in a busy sector.

A bridge loan may help an entrepreneur secure project funding. First, you need to make a strong opening purchasing offer that ensures a deal with another brand goes through quickly and with as little negotiation as possible. However, this short-term lending option may entail higher interest rates than usual, making it better for established business owners than for newcomers to the market.

SBA 504 Loan

Entrepreneurs wanting to acquire financing from the public sphere are encouraged to consider an SBA 504 loan from the Small Business Administration. According to government records, SBA 504 loans have already provided entrepreneurs with tens of billions of dollars in funding, creating over 2 million jobs. Entrepreneurs can secure SBA loans of up to $5 million, and usually come in 10-, 20-, or 25-year terms.
SBA 504 loans are provided by non-profit Certified Development Companies (CDCs), each covering a specific geographic area. SBA loans often feature below-market interest rates and low down-payments, making them attractive to new startups looking for affordable yet powerful financing options.

SBA 7(a) Loan

Another popular financing option provided by the Small Business Administration is an SBA 7(a) loan. While the SBA 7(a) is like the SBA 504 in many ways, there are crucial differences between them. For instance, SBA 504 loans are typically relied upon by entrepreneurs who plan to undergo costly construction or renovation projects for pre-existing businesses. An SBA 7(a) is more dependable for those entrepreneurs looking to start a new business from scratch.

Whereas an SBA 504 loan is ideal for current business owners looking to purchase long-term heavy machinery, an SBA 7(a) loan is preferable for new entrepreneurs looking to invest in customized leasehold improvements. Small business acquisition financing facilitated by the SBA is incredibly reliable, though it may take longer than costlier private options.

Find a Fitting Acquisition Financing Partner

Finally, business owners should consider soliciting a private equity investment that may provide them with the funds they need when no one else believes in a brand’s commercial viability. Small Business Investment Companies (SBICs) are licensed and regulated by the SBA to help entrepreneurs manage the delicate process of small business acquisition financing. This option may provide a company with a short-term cash infusion and crucial expertise that bolsters the overall efficiency of a business.

Securing a business loan is always easier when entrepreneurs depend upon financial expertise to explore various available options. Partnering with AVANA Capital will ensure that a company secures its funding for expansion while also granting business owners access to unique financial support, which steers them away from costly mistakes.

The individualized financing guidance provided by AVANA Capital’s team of experts will provide the best solution to any brand’s financial dilemma. A partnership with AVANA Capital can also help new business owners forge long-lasting commercial relationships that will yield dividends for years to come. Entrepreneurs should contact AVANA Capital to secure a healthier financial future.