A business acquisition loan is used to purchase existing businesses or open a franchise location. The amount of funding is based on the business you’re buying and the collateral you are able to provide. The rates offered will depend on your qualifications and ability to meet repayment and financial deadlines.
SBA 7(a) Loan
The 7(a) Loan Program is the most general and common small business loan program that the SBA offers. A 7(a) loan is applicable for most business purposes, which includes the acquisition of an existing business.
A term loan is traditionally a bank product, which can mean a longer application process with many documents required. These are lump sum loans that are paid back over a set period of time, plus the interest accrued since the loan was initially offered. Term loans are one of the most common loan types, which is why they are commonly approved as business acquisition loans.
Asset-based loans use the property owned by the business as collateral for the loan. This means items like equipment or owned property are used to ensure the loan, rather than the property of the buyer, Giving lenders more security, and borrowers with a lower credit score easier access to capital.
a loan that is backed by the cash flows of the purchased business, with the borrower, borrowing money from the expected revenues they anticipate they will receive in the future. Credit ratings are far more important in this form of lending, in addition to historical cash flows.
These loans do not require any type of collateral like property or assets. Instead, these lenders examine expected future company incomes, its credit rating and its enterprise value.
Mezzanine loans are a combination of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default. These loans help fill the space left when a lender is unable to fulfill the entirety of the loan, either due to the size of the loan, the risk of the business, or the credit score of the borrower. The Lender assumes control of a portion of the company, allowing them to receive continual returns from the company’s profits.