Many entrepreneurs are more interested in building a business than they are in running a business, which means they often have an exit strategy that involves selling their startup. Purchasing an existing business often costs more than building one from scratch, since the seller is usually trying to make a profit on the sale. However, an existing business also poses a lower level of risk, which is why a business acquisition loan usually has more favorable terms than a business startup loan. Obtaining financing for a business typically requires you to talk to many lenders so you can weigh your options and make a decision. An online marketplace is a great place to find a loan to buy a business since it allows you to compare multiple loans in one place.
A business acquisition loan, in California or any other state, requires you to determine the value of the business, including its current market value and its potential to produce cash flow in the future. The business valuation process should begin with a comprehensive review of the business’s industry in this state. This step is important because businesses with the same annual profits can have very different values if they are in different industries. For example, a medical practice will be worth more than a restaurant with the same annual profits because a medical practice has more stable clientele, giving it a higher probability of long-term success. A business’s value also depends on other factors such as its operational history, brand recognition, viability and community goodwill toward that industry. Other factors to consider when assessing a business’s value include its inventory and whether the property lease is transferable. A business will also have various intangible qualities that can make it attractive to a buyer but not necessarily a lender. Soft assets are generally difficult to value, but they can be very important to a business’s ongoing operations.
Lenders primarily look for borrowers that have a good credit score and solid financial history. You will also need to show a business plan, history of industry experience and other qualifications that will assure lenders you have the ability to make the business successful. In addition, lenders will review the financial history of the business itself, including cash flow statements outstanding debts and tax returns.
Your personal credit and that of your potential partners should be at least 650, with higher scores obviously being better. All lenders use this score as a predictor of financial responsibility, including those backed by the Small Business Administration (SBA). Credit scores are not always accurate or fair, but this is how lenders do it.
Lenders will need to know the net worth of you and your partners. You will need to provide them with documentation of assets such as bank balances, stock holdings, home equity and retirement funds. Furthermore, lenders will want to know about liabilities such as home mortgages, car loans and personal loans. A lender will typically want to see your complete tax returns for the last three years, especially if the lender is a bank. In most cases, lenders will also want to see the tax returns of all partners with at least a 20 percent share of ownership in the business.
Applicants must generally have substantial business experience to qualify for a loan to buy a business in California. You should also have several years of experience in the specific industry of the business you want to buy. Ultimately, you need to convince the lender that you are able to manage the business.
Perform your due diligence on the business and its owners before making your decision. In addition to fitting your particular set of talents, the business should already have established customers, revenue and operating procedures. It is also important to secure the rights for the business’s digital assets, including web domains, email accounts, social media accounts and passwords.
Check your monthly payments with our business loan calculator. The amount of these payments is directly related to the value of the business and the down payment. SBA-backed lenders typically prefer a down payment of at least 20 percent to be convinced that you are committed to the business. You may be able to reduce the size of the down payment by obtaining some financing from the seller, usually in exchange for a standby/standstill period.
• Purchase a business in an industry in which you have several years of experience.
• Do your due diligence on the business and the owner(s) before you decide.
• Don’t forget to secure the digital rights such as web domains, email accounts, social media accounts, and passwords.
• Check your monthly payments with our Business Loan Calculator
Obtaining a business acquisition loan generally requires you to convince a lender that you pose a low risk. These factors can be classified into matters of expertise and finance.
You need to be generally proficient in running a business, preferably in the same industry as the business you are buying. However, some lenders are more lenient on the requirement for specific industry experience. Lenders will be interested in your personal finances and those of your prospective partners. Lenders will also want to know about the business’s financial state and will generally require the business to have a positive cash flow. Additional factors that may affect the lender’s decision include the physical and digital assets of the business.
Magilla Loans is a platform that connects borrowers with lenders. Our search engine allows borrowers to find lenders and compare loans without providing personal information such as name, Social Security number or phone number. The proposed loans are displayed on our patented MagChart™, which allows borrowers to easily compare terms between loans. Visit Magilla Loans today to find out more about how we can help you find the right business acquisition loan terms for you.