A lot of entrepreneurs prefer purchasing an existing business rather than starting from scratch. This is because when you acquire a business, you are presented with less challenges and risks compared to startups.
Not only do you have an established customer base, but pretty much everything has been set up for you to run and manage.
You save time and effort when you go down this route, but it doesn’t necessarily mean that this is much easier, it’s a case-to-case basis. That being said, if you’re interested in buying an existing business, you’re probably aware of the fact that this is going to be a costly procedure.
However, don’t let that discourage you from reaching your dreams. Keep reading to learn how to get funding to buy an existing business in multiple ways.
Funding Options For Purchasing a Business
So you want to acquire a business but don’t know exactly where to start, we hear you and understand how overwhelming it can be. Here are the different options on how to get funding to buy an existing business.
Your own funds
If you have enough money saved up, then you can use it as a means to run your acquired business. However, this route is not always advisable as it’s best to have additional support as well.
Bank funding
Requesting financing from a traditional bank may be difficult and will require a lot of documents in order to get approved. If the business you’re planning on purchasing already has significant assets, then there’s likely a higher chance of your application getting approved.
SBA financing
You can acquire additional financing from participating funders guaranteed by the Small Business Administration. This type of financing has typically lower interest rates compared to traditional banks. You can check out REIL’s SBA express funding service for more information.
Assumption of debt
Debt assumption means you are basically acquiring the company’s debt and the amount of any outstanding payments is deducted from the total cost of purchase. In simpler terms, the liability from the initial buyer is transferred to the new acquirer of the business. This type of financing however needs approval from the company’s creditor in order to transfer the debt under a new agreement.
Eligibility Requirements for Business Financing Application
Just like any other financing process, your application is going to be based upon several factors. It’s best to prepare each one to ensure a higher chance of approval. Whether you already own an existing business or this is going to be your first, here’s a list of what you need to present.
Tax Returns
This is important for obvious reasons, they want a general overview of your business or your annual income and reassurance that you’re responsible for filing returns.
Business/Personal Credit Score
Your credit score is a clear indicator of how responsible you are financially. Do you have good borrowing habits and are you able to pay it back in time? This factor applies to you as an individual and to your business. No funder would want to give additional financing to someone who isn’t able to pay it before the due date.
Cash Flow Statement
Presenting a cash flow statement for existing business owners means you are giving funders the reassurance of being able to pay back the funding that was provided initially. That just means that your business is bringing enough profit to cover the costs of any debts.
REIL is Here to Help!
We know how tedious the process of acquiring an existing business is, which is why we’re here to make things a bit easier for you! With just one click away, you can get approved for express SBA financing so you can get that business you’ve been dreaming of.
Need more help? We’re here to assist you on every step. Schedule a call with a capitalist specialist today!
