What can you do with a business acquisition loan?

What can you do with a business acquisition loan?

Strictly, the issuing of bonds is a way of getting a loan but is usually more efficient and less costly than a bank loan. It allows a fixed rate of interest over a longer period than is typical of other forms of finance. The master loan agreement, or bond indenture, includes all the relevant information an investor needs: time scale, interest rate, and so on. This means that individual negotiations with numerous investors are not needed.

Merger

If you can agree on a merger with the other business, then the immediate costs will be far lower than buying another company outright. Finding another business where the synergy with your own is a match is the difficult part. There is also the question of losing some of the control of your own business to be taken into consideration. When it works, it can be good for both parties; the problem is, it doesn’t always work.

What is a business acquisition loan?

A loan obtained for business acquisition is specifically intended for the buying of another business and is the most common way of funding such an operation. The lender will place tight restrictions on the loan, and there will be a time limit on its use.

Types of Business Acquisition Loans:

Banks are well-used to providing money for business acquisition and have specific provisions in place. There will be specialized teams to make the process as straightforward as possible, and the loans often carry low-interest rates. It may well be that your own bank will offer the best terms as they know and understand your business, and they should be top of your list. But as with all financing options, it often pays to “shop around.” If your company is doing well, your own bank will be keen for you to remain their customer, and you can use this in negotiations.

SBA Loan

These are like standard bank loans but often better. The Small Business Administration doesn’t actually provide loans themselves but rather works with other financial institutions that provide the cash. What it does do is guarantee much of the loan, removing most of the risk from the lender. The qualification requirements are high, but the benefits of low interest rates and long terms make this form of finance well worth looking at.

SBA loans are available from $150,000 to $5 million and cover up to 75% of the acquisition and for terms of seven to ten years.

Asset-Backed Loan

With an asset-backed loan, you are basically offering the assets of the business you are buying as collateral for the finance offered. Should all not go to plan, the assets can be liquidated so that the lender doesn’t lose all the capital. The problem is matching the seller’s valuation with the value put on its assets by the loan provider.

Private Equity Financing

This is a growing sector. Finance companies are springing up looking for investment opportunities, including businesses looking to acquire another company. Having a say in the running of the business is often part of the package, but this can be an advantage as the experience of the investors can help your business grow and prosper.

Crowdfunding and peer-to-peer lending are other aspects of this sort of third-party financing. These are relatively new phenomena and allow people to invest who would not normally be able or allowed to. Often, they are looking for innovation as well as profit, so you need to approach this finance opportunity with care.

A business acquisition loan is exactly what it says: a loan provided for the acquisition of a business. However, when negotiating the loan, you should take into account the running costs needed to cover any teething problems after the acquisition.

Send this to a friend