How to Get Business Acquisition Financing to Scale your Business to New Heights
Business Acquisition Financing
When looking into a business acquisition, there are some key things to consider. The purchase price, growth expectation, and financing terms of the company are crucial to ensuring your investment will offer a capital return. Acquiring capital for a business acquisition can be challenging, as many lenders have modified and restricted their lending guidelines, meaning that finding the best financing terms can be difficult. Due to the developing market, many alternative financing options have cropped up, such as private lenders, meaning that finding funding for your business acquisition is still a possibility.
Financing a business acquisition can involve different avenues of financing, such as bank financing, seller financing, and asset-based financing. The financial standing of the business you are acquiring can determine which of these financing sources are the best option for your business.
Companies with many assets, consistent cash flow, and high profit margins are ripe for bank financing. However, recently there has been a decline in cash-flow based loans, and as such finding a banking company that will offer a business acquisition loan can be challenging. In the modern market, collateral is often the key factor when it comes to determining if your business qualifies for a bank loan. Finding the right bank for your intended goal, such as a bank with a history of financing business acquisitions, can be key to gaining approval.
For smaller business acquisitions, many times the seller finances part of the transaction. In most cases, the buyer makes a down payment on the business and the seller is left in possession of a promissory note for the remainder of the purchase price. The business as a whole and its assets act as a collateral for the note in this case.
Asset-based lending has increased in popularity as a type of financing. Asset-based loans depend on available collateral, like inventory, equipment, and fixed assets of the business. Asset-based lenders look to the collateral of the business and the quality of their cash return to determine the terms of the loans. However, asset-based loans are more expensive than other business acquisition options, as interest rates can range from 12% to 28%.
Regardless of what financing option your business decides to go with, first impressions are key. Making sure you have a clear plan for your future business developments, and provide examples of how the acquisition of this business will improve your gross profits in the long run.
If you are looking for more information on business acquisition, look no further than Ironhorse. And with in depth guides on asset-based lending, tax preparation, and other business insider advice, you’re sure to find the information you’re looking for.