There are many financing options for business purchases. The capital needed to launch, maintain, and grow new businesses comes from a variety of sources, such as small business loans from various financial institutions. Due to this variety in financial sources, many entrepreneurs evaluate their options to determine the best fit for their specific needs and businesses. As an entrepreneur yourself, there are several steps you can take to familiarize yourself with these various financing types. Read on to discover a few of the best options for financing a business purchase.
Your Own Savings
Using your own monetary investing savings is one of the simplest ways to finance a business purchase. Ideally, you’d save up money over a period of time and purchase/launch your business when you have enough. However, this financing type is often limited by the rate of savings. Many entrepreneurs combat this limitation by taking money or equity out of their homes, retirement plans, or insurance polices. This, of course, carries an enormous amount of risk. If the business fails, you’ll be stuck without one or more of the necessities you’ve liquidated. Talk to a financial advisor before doing so if you’re considering liquidating these assets for business purchase financing. Surely, your own savings is one of the safest, easiest ways to finance a business purchase since the money is all yours.
Business Credit Cards
Credit cards are convenient for businesses that need to charge expenses and pay them off later. In fact, there are many credit cards for business financing that pay you back in the form of miles, points, or cash back. When considering using a credit card to finance a business purchase, understand the difference between business and personal credit cards. Personal cards can be used for business expenses, but doing so often gets messy when bookkeeping and filing business taxes. Business credit cards should be reserved only for business expenses, such as a purchase. Absolutely, using a business credit card to finance your business purchase offers convenience in the ability to pay off incurred expenses later.
Personal loans provide a great alternative to business loans, which are often difficult to obtain when purchasing your first business. Business loans are typically dependent on the health and creditworthiness of your business, among other characteristics. If you’re purchasing a business, you probably don’t yet have a business with these characteristics. Therefore, a personal loan is a better option for first-time purchasers that depends on their personal financial characteristics. Often, these include credit score, income source, debt-to-income ratio, and the loan’s proposed use. Depending on the lender, you can obtain a 50k or 30k personal loan. Certainly, personal loans provide capital solutions for entrepreneurs purchasing their first businesses.
Venture capital firms are often dedicated to exchanging needed capital for equity shares in a business. These firms typically distribute their money in rounds, categorizing businesses by their maturity level. If you’re purchasing an existing business, it’s likely to be midway through these rounds. In fact, most small businesses and startups don’t have the equity ROI potential venture capital firms are looking for. Typically, the firms go after industry disruptors with significant funding needs and fast-moving business plans. If this sounds like the business you’re purchasing, consider this type of equity financing to exceed your funding goals. Definitely, venture capital firms provide significant funding and business guidance, but require equity in return.
Angel investors are another financing option that provides capital in exchange for equity. Unlike venture partners, however, angel investors are individuals instead of financial firms. As individuals, their capital and potential ROI requirements for investing are often lower. This way, they are more likely to invest in your business purchase than venture capitalists. Additionally, angel investors are experienced business professionals that often provide guidance and assistance in running your business. Since they have some equity in your business, its performance affects their bottom line, as well. Of course, angel investors offer similar benefits to venture capitalists at much lower requirements.
There is a myriad of options for financing a business purchase. One option is to use your own savings, which is often the safest, easiest way to finance a purchase due to the money being solely yours. Another is to use a credit card for the convenience of paying the expense off over time. Third, personal loans provide capital solutions to entrepreneurs unable to secure business loans. Venture capitalist firms offer significant capital investments, but require equity and demonstrable growth potential in exchange. Finally, angel investors provide similar benefits to venture capitalists, but on a smaller, individual scale with looser requirements. When searching for the best options for financing a business purchase, consider the options described above.