If you’re ready to purchase a business from someone else through an acquisition, it’s important to make sure that your financing is lined up and ready to go. If you’ve already selected the business that you want to acquire, you have to remember that you need to consider operational costs as well as the financing needed to purchase the business.
There are several ways that you can finance a business purchase, such as:
- With seller financing
- With your own funds
- With a loan from the bank
- With an SBA loan
- Through leveraging the buyout
For most people, either opting for seller financing or using their own funds will be the easiest and most reasonable way to purchase the business.
Should you use your own funds to acquire a new business?
If you want to keep the transaction simple, then this is a good way to do it. With your own financing, you have the money needed for the purchase and can put it down. Remember that most people won’t finance the entire purchase with their own money, though. Most use SBA loans or seller financing to have more leverage. With greater leverage, they can purchase a larger business.
Seller financing is another purchase option
Another option used to acquire businesses is seller financing. Not all sellers will finance, but if they do, then they essentially give you a loan. You pay the loan back over time, eventually buying the seller out of the business.
Sellers aren’t usually willing to finance 100% of the sale of the business. However, they may finance a third of the sale or half, so you don’t need to have as much money up front.
Before you can get a seller to finance the purchase of the business, they will want to know that you have your own money, loans and assets to invest. They will also likely ask to see your business plan.
These are different ways to acquire a new business. If you’re ready, make sure your attorney reviews any contracts that you may need to sign during the acquisition.