So you’re thinking about acquiring a business either to branch out, as an easy way to start your own business or perhaps to buy out your partners and become the sole owner of your company.
Well, the next step is to determine how you will fund the acquisition, which many entrepreneurs typically turn to a business acquisition loan to help them do.
And though business acquisition loans carry strict requirements compared to other business loans, you can still meet the basic requirements for greater success by incorporating the following few steps.
Develop a Well-Written Plan for Your Business
A well-thought-out, well-written business plan makes a world of difference when it comes to convincing lenders to approve you for a business loan.
Therefore, you want to develop a business plan that strongly backs up the probability of success for your business. In short, it should describe your business and its employees, as well as its competitive landscape in the market.
However, the overall details of the plan should demonstrate the steps you will take to achieve your goals and a projected time limit for getting there.
Gather Financial Documents From the Business You Wish to Acquire
In most cases, you will need to provide the lender with at least three years worth of Cash Flow Statements, Balance Sheets, and Profit and Loss Statements for the business you are acquiring, which will serve as proof that you can repay the loan.
Gather Your Tax Returns
You will also need to provide the lender with your most recent tax returns, including any tax returns for other businesses you own, which they will use to assess your reliability to meet your obligations.
Establish a Strong Credit Score
Lenders will also use your credit score to help determine your ability to repay the loan and then calculate the interest rate based on your risk.
Therefore, you want to also establish a good credit history to increase your chance of securing a business loan at the lowest rate.
Contribute to the Acquisition
Many lenders will also look at your contribution to the acquisition as proof that you are serious about making the business work and are also willing to take a stake in it.
Therefore, be ready to show at least a 10 to 20 percent commitment.
Explore Your Options for Funding
According to Lantern by SoFi, ”if you’re wondering how to finance a business purchase you’d like to make, start by exploring your options thoroughly to see which requirements you meet and what structure makes the most sense for your needs.”
The Small Business Administration may be a good place for many small businesses to begin because they offer a wide range of loans with greater flexibility, including the SBA Business Acquisition Loan.
Overall, there are many ways to help ensure you secure a business acquisition loan, starting with the aforementioned steps.
However, if you have bad credit, you might first work on improving your credit score or offer a large down payment to help increase your chances of qualifying for the loan.