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Jun 24, 2024
5 min read
Last update: Jun 24, 2024

Navigating Business Acquisition Loans: A Guide for Entrepreneurs

Business acquisitions are strategic investments that allow business owners to consolidate operations, expand locations, or establish subsidiaries. Acquiring an existing business or buying out a partner is a high-cost investment, and cash for such an investment can be hard to come by. 

To fund these transactions, business owners and investors turn to business acquisition loans for the capital needed to make a deal happen. These loans aren’t for the faint of heart, as many lenders demand a lot from borrowers. 

Put yourself in a prime position for approval by reading this guide from SBG Funding. You’ll learn what business acquisition loans are, how to qualify for one, and if it’s the right funding option for you. When ready, partner with SBG Funding to meet your business needs and get your business funded! 

What Are Business Acquisition Loans?

As their name suggests, a business acquisition loan is for entrepreneurs, owners, and investors who want to buy existing businesses or buy out a partner but don’t have on-hand capital. Some may even use a small business acquisition loan to get a franchise off the ground. 

There are many types of business acquisition loans, such as:

  • SBA 7(a) loansLoans backed by the U.S. Small Business Administration (SBA). They provide borrowers who meet strict qualifications, down payment, and collateral requirements with up to $5 million ($10 through SBG Funding) interest and terms up to 25 years. 
  • Traditional bank term loan – A bank loan or credit union-provided lump sum loan. These loans are for borrowers with solid credit, established business tenure, and profitable revenue. With better financial health, you get lower interest rates and longer repayment terms. 
  • Rollover for Business Startups (ROBS) – A method of accessing funds from your retirement accounts to invest in a business. This financing method offers borrowers no early withdrawal fees, taxes, interest, or monthly payments since it’s your own money. Despite its benefits, it has several regulatory requirements, meaning you’ll need professional help.  
  • Seller finance – Another alternative financing option that allows a seller to provide a buyer with finance, like a line of credit or a lump sum. This funding option allows a buyer to make regular loan payments and is an excellent solution for buying out a partner. While both parties agree on terms ahead of time, there can still be significant risks to the relationship. 

These are just a handful of the various business acquisition loans available. You can also use other funding methods, like merchant cash advances, business lines of credit, or bridge capital, to acquire businesses. Still, they might be less than ideal for that purpose. 

Is a Business Acquisition Loan Right for You?

With several options for funding your acquisition activities, you may wonder if a business acquisition loan is the right solution for your needs. A look at a few of its characteristics can guide you in the right direction.

A business acquisition loan is an excellent option for borrowers with excellent personal and business credit. These borrowers will also be in a position to stake collateral or make a down payment of up to 30% of the total loan amount.

In exchange for above-average creditworthiness, borrowers receive generous repayment terms, some as long as 25 years. These business acquisition loans also have competitive interest rates compared with other business lending options. 

Entrepreneurs, business owners, and investors qualifying for these loan options can explore SBG Funding for their lending needs. Our world-class customer service, rapid approval, and quick funding times make us an unbeatable partner. Check out our Lending Calculator to find out how much you need!  

For all the benefits a business acquisition offers, it’s not a perfect solution for everyone. For example, those needing startup capital won’t have enough business tenure to qualify in many cases, and SBA lenders have steep requirements for their borrowers. 

Likewise, those with less-than-perfect credit, borrowers looking for shorter repayment periods, or owners needing repeated cash access for their acquisitions might find utility in other lending options. These could be a business line of credit, equipment financing, or merchant cash advances.  

Understanding Your Financial Commitment

Business acquisition loans are often long-term lending commitments, with many extending several years into the future. Save yourself some headaches later by doing some due diligence and considering some of the following:

  • Look closely at the repayment terms and ensure they align with your business goals and budget. 
  • Read the disclosures and consider the fee schedules; any added fees will detract from your bottom line. 
  • Compare rates, terms, and loan amounts and consider variability. 
  • Ask how long it takes for approval and fund deposit. 
  • Research the customer service. SBG Funding has an incredible 5-star Trust Pilot rating from thousands of happy borrowers!

With these factors in mind, take an objective look at your business and be honest about your ability to repay a loan of this magnitude. Acquisitions can be savvy business moves, but not if they put you at a significant disadvantage. 

Qualifying for Success: Eligibility and Requirements

Getting approved for a business acquisition loan depends on your credit history, revenue, and business plan. A general rule of thumb is that the better your financial posture, the higher the chances of approval at better rates. 

However, SBA loans are a bit unique. You’ll need to meet some strict requirements, like:

  • Operate an eligible for-profit business type (no non-profits, life insurance, or MLM organizations).
  • Fall into the SBA’s definition of “small business size.”
  • Owners applying for the SBA loan must also be unsuccessful at obtaining funding from private sources. 
  • Business valuation/business appraisal with three to five years of tax returns.
  • Owners must have good personal credit and demonstrate an ability to repay the loan. 

Online lenders, like SBG Funding, will have more specific eligibility requirements, such as:

  • 650+ FICO business or personal credit score
  • Profitable business with at least two years of tenure
  • Healthy cash flow with low debt
  • Revenue of at least $500,000 

Focusing your efforts on improving your financial health will pay dividends in the form of more favorable interest rates and more extended repayment periods. Crafting a thorough business plan will also give lenders confidence in your ability to repay, leading to better rates. 

Your Path to Approval: The Application Process

Aside from the SBA’s more complicated process, applying for a business acquisition loan is straightforward. At SBG Funding, the process is only three steps:

  1. Fill out our simple online application
  2. Submit your documents (financial statements and identification)
  3. Get approved and funded

Approval from SBG Funding can happen in as little as 24 hours, meaning rapid funding for quick take-overs. Our process saves you time and effort compared with other lenders, who could require more paperwork and longer loan applications, which could even force you to hire an outside professional. 

Common Risks and How to Mitigate Them

There are many risks associated with acquiring an existing business. Some come about in relation to the acquisition, while others are a symptom of bad prior management. For example, the new company might take its time compiling required financial records, which puts you at a disadvantage when repaying the loan you got to acquire the new business. 

Additionally, relationships can turn sour after the acquisition, leading to management turnover, lost sales, tarnished reputations, or worse. To mitigate these risks, you should have a detailed transition plan to make the acquisition process seamless. 

Make Informed Decisions with SBG Funding

Business acquisitions happen daily, and only some entrepreneurs, small business owners, or investors have the cash on hand to make a deal. That’s when a business acquisition loan can come in handy, providing the much-needed working capital you need.  

While these loans are effective for many, they’re not the best solution for everyone. The strict credit, business tenure, and annual revenue requirements don’t make sense for every borrower, but the longer payback periods can be life-changing. 

Don’t wait weeks or even months to get business acquisition financing. Partner with SBG Funding to streamline your application and get cash as soon as tomorrow! 

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