Are you interested in purchasing an existing business or franchise? There are several business loan purchase options at your disposal.
We look at the top business purchase loan options to help you understand your choices. From funding the full purchase of an existing business to managing equipment costs, here are the top business acquisition loans worth considering.
SBA 7a Loans: The Most Common Business Purchase Loan
The Small Business Administration offers one of the most popular business acquisition loan options: the SBA 7a loan program.
SBA 7a loans are popular small business loans because of their versatility. They can be used to purchase business assets, acquire real estate, or buy an existing business and fund a change of ownership.
As such, they’re among the most common small business acquisition loan options.
The average SBA 7a loan structure will often look like:
- Receiving 80% of the funding you need to purchase an existing business
- Making a 10% down payment on your business acquisition loan
- Receiving 10% in the form of seller financing
With that in mind, you may be able to receive more support with an SBA 7a loan. An SBA loan could cover up to 90% of your purchase. However, you will have to deal with a higher interest rate as a result.
Consider what’s within your scope financially and how an SBA 7a loan can help you achieve it. Additionally, look for an SBA preferred lender for speedier financing. Non-preferred SBA lenders will require additional approval from the SBA.
Seller Financing
As mentioned above, sellers may sometimes help finance the business purchase.
Seller financing is often combined with the SBA loan program.
However, a seller may also finance most of the purchase separately from the loan program. This type of business acquisition loan does come with some downsides. Namely, a higher down payment and the lack of desirable SBA loan term options.
But independent seller financing is just one option. Seller financing with an SBA loan is the better route. A seller note often features a 5-year payback cliff, amortized over 20 years.
Seller financing offers some key advantages, including:
- Full standby terms, which means you won’t have to pay off the seller loan immediately. This will reduce financial strain as you focus solely on paying off the SBA backed loan from your chosen financial institution.
- A smaller down payment that makes it easier to afford your business acquisition.
- Continued investment from the previous business owner to ensure business growth.
Seller financing can be a great way to make your entrepreneurial dream more viable.
Equipment Loans
Equipment loans are designed to help you afford equipment for your small business. You don’t use this business loan to buy a business. Instead, you use this small business loan as part of the business acquisition.
Equipment loans may last anywhere from one to ten years. The loan amount you receive will depend on what type of equipment you need.
For example, if you need to rent standard construction equipment, you could receive up to $100,000 from a lender. If you need specialized equipment, you could receive small business loans of up to half a million from a lender.
Interest rates will vary depending on your credit. A down payment may also be necessary for this financing option. However, there are equipment loan lenders out there who may extend an equipment loan without the need for credit approval.
The one key upside of equipment loans is their lack of need for collateral. The equipment that you’re financing serves as collateral.
Real Estate and Auto Loans
There are many moving parts to purchasing an existing business.
In instances like the above, you might need to purchase equipment.
In other instances, you could need to purchase real estate or whole fleets.
That’s where options like real estate and auto loans come into play.
Commercial real estate loans can come in several forms.
You might get an SBA 504 loan. An SBA 504 loan can be used for real estate purchases. Still, you might need additional funding beyond what you initially receive for business acquisition.
Meanwhile, commercial auto loans can help you acquire business vehicles.
Auto loans can reach up to $500,000. The higher limits are generally reserved for vehicles like commercial trucks. You can receive terms of up to 84 months. Some lenders will work with you if you have fair credit.
You should also look into options like a million dollar business loan if you have a considerable amount of property to purchase.
Low Interest Business Lines of Credit
A low-interest business line of credit is a solid choice for business acquisition financing.
Business lines of credit are revolving credit. Instead of a lump sum you can only use once, you can continue tapping into your line of credit for business expenses.
Low interest business lines of credit can reach up to around $250,000. A few might help you get a down payment for an established business. However, if you can get enough, you could cover entire business acquisitions.
There are two things to note, however.
- The key word here is “low interest.” Some business lines of credit from online lenders come with high interest rates. You want to avoid going into major debt right after starting your business.
- You need to arrange lines of credit before the deal starts. You have to leverage the fundability of your current business to acquire business lines of credit.
Expand Your Business Purchase Options with Credit Suite
Credit Suite’s Fundability System enables you to build business credit fast and expand your loan options within a matter of years.
Get started with Credit Suite today to access better terms, higher limits, and better business acquisition loans.
