Buying a business would always be a big decision in the business world. Passionate businessmen and entrepreneurs would always consider buying another business to expand their probability for more business success and profit. However, there is always the big question on where to get the money to purchase a business. This problem is more or less similar to searching a capital for start up businesses.
Financing a business acquisition would not be that hard if there is an existing business which is consistently gaining a profit. Hence, source of fund would not be a problem. But above all of these, as a business buyer, the first thing that you need to consider is if that business is really reaping a profit. After making a good assessment, the next would be to think about the deeper financial aspect of running it.
Business acquisition is always partnered with the question: where will I get the fund? It is the same question when looking for an investor to fund a startup business. Here are some possible ways:
Bank loans
Even if this is already conventional, prospective business buyers would still consider borrowing money from a bank. However, one can only secure huge business loans from banks if they can present proofs that they have tangible collateral’s and reliable source of income. Banks will not finance a business acquisition 100 percent. Most of the time, they will only fund 75 percent of the acquisition. The rest will be your personal investment as well as the proof that you really believe in the venture.
Additional equity from existing investors
This is very easy if your company is really having a consistent and considerable profit. You already have the score card to convince investors to fund other business acquisition. In this case, it would just be easy to prove that you can cover any potential failure in your new business venture since you have a fallback source.
No money deal
This is a new and wise way of doing some business acquisition. Imagine this scenario; you have a friend who runs a cafe. You know that the cafe has a big probability for a profit. The only problem is that your friend is too preoccupied with something else to make it really profitable and is having headaches running it. So, what you do is buy the cafe without paying him anything upfront. You overtook all the responsibilities and you made it profitable then start paying him off from the profit generated.
Small Business Administration
The Small Business Administration of the United States of America has a guaranteed loan program which is more affirmative to business buyers. SBA can lend up to $1.5 million – which can be repaid within 10 years. However, business buyers must prove that they have a stable business with stable cash flow and profit in order to avail for the loan. They must also be willing to provide collateral’s such as machineries and other equipments. All of these are of course subject to other governing terms and conditions.
Personal Funds
Normally, 40 to 60 percent of business acquisition funds come from personal funds of the business buyer. In this case, buyers have to really come up with the decision whether to take the risk or not. This business acquisition funding technique is risky but at the same time generates a positive signal because the buyer is able to attract more investors.
Businessmen and entrepreneur must always be ready and willing to take some risks when dealing with business acquisition. After all, it all depends on one’s own business acumen to succeed in the business field.
E. Linares is Chief Visionary Architect at Commercial Magnet:: the new face of the online lending marketplace where borrowers and lenders connect. CommercialMagnet.com is the entrepreneurial platform taking business owners from start to funding. Find out how a Venture Capital Loans or Commercial Loans can help fuel your business at commercialmagnet.com.