It can be convenient to buy an existing business.Existing customers, marketing, and products are what you're buying into.Repayment of purchase expenses can be done immediately with the profits earned by the business.Financing that business purchase in the first place can be more expensive than starting a business of its own.You should consider the following methods for coming up with the capital to purchase a business.
Step 1: Investigate SBA loans.
Small business can get loans from the SBA to get started.SBA loans can be obtained by visiting a local bank or financial institution.If you don't make payments on the SBA loan, it will be repaid, making it easier for you to get financing.The SBA Basic 7(a) loan program is used for starting or acquiring businesses.You need to own a small business as defined by the SBA to be eligible for this type of loan.The information can be found on their website.You should plan to operate for profit.It's a good idea to operate within the United States.You should invest your own assets in the business.There is a need for the loan.Don't owe the US government anything.
Step 2: You can meet with financial institutions.
Local lending institutions include banks and credit unions.It is difficult to secure this type of lending if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as security.To qualify for a traditional bank loan, you will need management experience, strong cash flows, experience in the industry, and a high personal credit score.It might be easier for you to get a loan if you have a good relationship with the bank.If you are a woman, veteran or minority, banks may have special lending programs for you.
Step 3: Determine what you can give.
You can provide insurance for your assets if you default on your loan.Some business loans need to be worth as much as 70 percent of the loan value.Equity in your own home is one of the things you can include in the collateral you give the banks.Accounts receivable and inventory are owned by the business.A guarantee.You are personally liable to repay a certain amount of the loan value in the event of a default.A personal guarantee for a loan is required by most lenders.They would prefer not to have to take possession of the property after the sale.
Step 4: Pre-qualify for loans.
You will need a few letters of pre-qualification before you buy the business.To purchase the business, you have to go through the loan process with each lender.After showing the letters to the seller, you will need to take out one of the loans that you are pre-qualified for.If the lending requirements change between your pre-qualification and the close of the sale, it's an advantage.Pre-qualify for more than the purchase price of the business.90 days of working capital is money used to keep the business functioning, like utilities and inventory purchasing money.You can work with the current owner to figure out how much is needed.
Step 5: Consider different loan options.
There are many sources of financing for the purchase of a business.It is possible to borrow money from friends or family.If things go south, this may damage your relationship with that person.Peer-to-peer (P2P) financing is one of the options you can consider.You can borrow small amounts from other people on online lending markets.Rates on these sites are usually higher than what a bank or SBA can offer.Microloans.Microloans are smaller than traditional business loans and have shorter durations.You can check with the SBA or a microlending specialist.
Step 6: Use your own money.
It is the cheapest and easiest way to finance your own business.You hold any savings accounts, CDs, investment accounts or other liquid accounts.If you use the money from these accounts to finance your personal, you won't have to work with partners, investors, or lenders when running your business.It is very rare for an individual to have enough money in these accounts to purchase a business.
Step 7: You can sell any assets you have.
You can raise money by selling off your assets.Parcels of land, non-essential vehicles, and boats can be sold to raise money.
Step 8: You can borrow against your home equity.
You can use a second mortgage or a home equity line of credit to borrow against the value of your home.You need to have enough equity in your home in the first place.In the event of the business's default, your house may be foreclosed upon by the lender.Before you take on this type of financing, consider the risks and try other options.
Step 9: Purchase the business with your retirement savings.
It is incredibly risky to roll your IRA or 401(k) savings into a business venture without taking a tax hit.You could lose all of the money you have saved for retirement if your business fails to perform as expected.Personal finance experts don't recommend using this as a method of business financing.
Step 10: It's a good idea to find a partner or several of them.
A partner is someone who gives initial purchase money for the business in exchange for an ownership share.If your partner wants to be involved in the business in some way, make sure to only take on a partner that you can work well with.Being close to someone doesn't make them a good partner; sometimes a trusted co-worker or acquaintance can make a better partner than a friend or family member.Make sure to draw up a legal contract that explains the terms of the partnership.The agreement should list how disputes are settled, how major decisions are made, and how profits are divided.
Step 11: Work with someone who is silent.
A silent partner contributes capital to the business, but has no say in its operations.Many silent partners want a say in how the business is run.To make sure that this relationship works as planned, draw up a partnership agreement that spells out the terms of your partnership.
Step 12: Angel investors should be brought on board.
An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business.Businesses with angel investors benefit from the investor's industry expertise, business contacts, and financial resources.Locating angel investors can be difficult.You will need a high net worth individual who shares your passion for the business you are buying.You have to convince them that you can give them a good return on their money.Angel investors can be found on the Angel Capital Association's website.
Step 13: Equity Crowdfunding is a way to engage in it.
There is a relative newcomer to the world of business financing, Equity Crowdfunding, which involves selling small stakes in your business to a large number of small investors.Equity Crowdfunding has been around for a long time, but has recently become more regulated by the SEC.The SEC guidelines can be difficult to follow when it comes to Equity Crowdfunding, but it can still be an effective way to raise money.
Step 14: Consider the pros and cons of seller financing.
A seller financing is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years.This allows the buyer to negotiate a longer repayment period, a temporary reprieve from payments, or reduce the price in exchange for letting the owner keep some equity in the business.This type of arrangement is more expensive, with the owner charging a higher interest rate than the bank would charge.Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term.If profits aren't as high as expected, this protects the buyer.You may be able to negotiate down the price of the business if you get seller financing.The seller will help you out more in running and managing the business if you do that.
Step 15: Ask the seller if they would consider financing.
Ask the seller if they would consider financing.If you explain to them that this will result in them getting more money over time, as they get to keep the interest on your loan, they will be more willing to lend you money.You can negotiate a contract if they agree.It is possible to avoid securing the seller with assets purchased.If additional financing is needed, you will have a cushion.
Step 16: Negotiating a contract is important.
The terms of sale can be formed with the seller.10 to 20 percent of the sale price is what you can gather on your own if you offer to make a down payment.This will help you and save you money in the long run if you offer as large of a down payment as you can afford.Discuss the repayment period and interest rate.If you can afford the payments, try to negotiate a longer repayment period and lower interest rate.In a number of years, you may be able to agree on a large balloon payment.Your monthly payments will be reduced by this.You can use your savings or a bank loan to cover the balloon payment.If a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer.
Step 17: A lawyer should review the contract.
An attorney that specializes in business contracts should draw up the contract.One way to ensure that your interests are represented and that there are no surprises in the wording of the contract is to have a review of it.The financials of the deal may need to be reviewed by an accountant.The lawyer and possibly an accountant should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.
Step 18: Get the deal done.
Once you've been assured that the contract is right for you and the seller, close the deal and take control of the business.With seller financing, you will be able to convince the previous owner to help you get started as the manager of your new business.