Business Acquisition Financing
Due to the economic restraints, many companies decided to downsize. This is the reason why more business owners are attracted to own even small business.
However, it is not that easy as what you think to own a business unless you have the resources such as business acquisition financing.
Obviously, owning a business requires financial resources. However, it is quite difficult to find business financing because not all lending firms offer such option. Choosing the best option of business acquisition financing is influenced by several factors that include personal circumstances and business circumstances. Likewise, it is also important to know the key considerations in choosing the effective financing options such as the type of venture, facts about the market size, risk tolerance as well as opportunities and competition. In this sense, it is necessary to do research to ensure the success of acquisition.
Financing Options
- Seller Financing
- Venture Capital
- Small Business Administration
Working with the seller is the best way of obtaining business acquisition financing. This is because the seller would be the best source of obtaining business loan. Likewise, the willingness of the seller to participate in the transaction is also influenced by the cash needs and tax considerations. There are instances in which the seller is financing the sale of the business to ensure that the deal would not fail. This strategy does not only guarantee successful sale but also the seller can have the chance to obtain good price.
In like manner, the terms are more advantageous to the buyer as compared of using third party lender. This is because the seller would finance at least 30 to 50 percent of the selling price along with lower interest rates and longer amortization. Likewise, the payment schedule is similar to traditional loans but it is reasonable than obtaining straight debt.
If you are looking for business acquisition financing you can consider venture capitalists. This is because venture capitalists are interested to finance existing and established business. Apparently, financing business acquisition is risky that is why buyer would look for single investor. On the other hand, venture capitalists are less intimidated by the risk because they are more focused on the return of investment that they might obtain.
Many buyers prefer to obtain business acquisition financing from Small Business Administration Loan Program. It offers long amortization periods and 70% financing. However, before a buyer can apply for SBA loan it is necessary to prove business stability and prepare collateral such as equipment, machinery or real estate. Likewise, it is also required to show healthy cash flow that would guarantee the loan payments. In case of insufficient business collateral the buyer can offer personal collateral.
Whatever option of business acquisition financing the buyer might choose it is important to consider other creative solutions. Keep in mind that taking some risks is also associated in obtaining financing.
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