With so many resources available, obtaining a loan to buy a business much easier than before. Business owners can either take a direct loan or make payments through seller financing. Fortunately, traditional banks have show increased leniency in extending loans to purchase an existing business. Additionally, for small business owners, the Small Business Administration (SBA) offers loan options to buy a business. Of course, you can utilize several alternative ways of getting a loan to buy a business. Knowing different finance options available enhances the chance of securing required funding to buy a business. In this post, some of the best options of obtaining a loan to buy a business have been listed for your help.
To buy a business priced above $150,000, traditional bank financing is the ideal option. However, qualifying for a traditional bank loan is difficult. Before offering a loan to buy a business, banks evaluate the credibility and financial condition of borrowers. Having high personal credit score, industrial experience and collateral are prime criteria of determining your loan eligibility. If you do not have a good credit score, you are going to need to rebuild credit score before this becomes an option. In addition, you have to provide details of the business you are purchasing and convince the bank of your ability to repay them. Moreover, you should be able to provide at least 20-30% of the down payment to buy a business. Despite the strict qualifying norms, low interest rates makes getting bank loans to buy a business worthwhile.
Small business owners should consider getting small business loans through the SBA for buying a business. Though SBA does not directly provide loans, it has made getting traditional bank loans for buying a business easier. Since Small Business Administration of USA offers partial guarantee on commercial loans, you can qualify even without any collateral. Due to comparatively lower interest rates, minimum down payment and longer terms of repayment SBA loans are more convenient than a traditional bank business loan. But, small business owners have to pay a guarantee fee on SBA Loans. On top of that, the application process is slow involving lots of paperwork. On the whole, the benefits of SBA loans outweigh its cons, making it the perfect choice for established small business owners to buy a business.
Utilizing seller financing to buy a business is another convenient option to consider. Often times, sellers offer a loan covering the total cost of buying a business partially if they have the small business bookkeeping tools required to do it. Generally, rest of the cost is covered by buyer’s down payment and other loans. Just like traditional banks, sellers too check the personal credit score, financial strength and overall resume of the buyer. Moreover, sellers do not offer financing on every business sale deal. Nevertheless, getting seller financing has some major benefits. It ensures that the seller continues to takes interest in the growth and development of your business even after closing the deal. Secondly, seller financing creates more opportunity for negotiations. Finally, utilizing seller financing reduces the burden on buyers of obtaining loans to buy a business.
Depending on the financing required, microfinance loans can cover the cost of buying a business partially or fully. Usually, one can obtain no more than $50,000 through microfinance. Due to comparatively smaller size of the loans, getting a microfinance loan is a bit easier. Plus, qualifying norms of getting microfinance to buy a business are comparatively simpler than traditional bank loans. Contacting microfinance organizations will give you a clear idea about how much money you can get to buy a business.
Peer To Peer Financing
There are several online lending platforms that specializes in offering peer to peer financing. If you fail to obtain traditional business purchase loans, many buyers secure small business financing through peer-to-peer lending platforms. Some of the benefits of getting peer to peer financing include low interest rates and negotiable repayment terms. What’s more, you can secure a loan for buying a business without a perfect credit history. This financing speeds up the process of obtaining money to close an urgent business purchase.
Rollovers For Business Startups
Another lesser known financing option is a rollover for business startups, or ROBS. ROBS offer you the ability to act on a business deal quickly by using your retirement account to fund your business venture. You will not have to worry about going into debt, and there are no taxes or penalties required on your withdrawal, unlike the S corp filing deadline. Yes, you are going to be putting your nest egg at risk. However, it may be worth it if you really believe in the business. Consider ROBS as a viable business funding solution if you need money fast.
One of the best financing solutions to buy an existing business is to find partners to bring on board. If you can find partners in a better financial position, those with additional household income, to start a business than you, this is the best way to do things. You can get the access to the loans you need to buy a business. Or, you may not even need loans if you find the right business partners. Form a business partnership if you are having trouble finding business loans to purchase an existing business.
As we have seen, there are several options to get a loan to buy a business. Depending on the amount required, you may utilize multiple channels of obtaining loan or other business loan alternatives. A good way of ensuring funding is to get pre-qualified by several banks and financial organizations. Surely, using these different financing options will help you get a loan to buy a business.
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