How to Finance a Business for Sale

October 31, 2018 at 8:00 AM Leave a comment

While looking to become an entrepreneur or business owner can be overwhelming at times, staying prepared will save you much hassle. The first step to becoming an entrepreneur is to identify a market where your business could thrive. After detailed research, you may have found Nevada will be a good bet for you. Finding a business for sale in Nevada comes with immense benefits: one of them is being spared from corporate income tax.

There is one thing that could put you at your wit’s ends though, that is where to get funds for the acquisition. Do not despair; there are plenty of options you can choose from.

1.    Own funding

This one is no brainer. By using your funds, you have the choice to use your savings, home equity or retirement accounts. It is the most straightforward way to fund your new acquisition. The beauty of this option is that you do not have to solely depend on it. It is very common to incorporate other sources. The advantage is that it can give you the financial foundation to buy a big business. You can use your funds to supplement the ones acquired from other sources.

2.    Bank loan

Another good option to help you run that business you desire is getting a bank loan. In as much as it may be difficult for a bank to approve you for a small business loan, it may be more than willing to fund you against the assets of the particular business. If you intend to get a loan from a bank, then make sure that the company in question has considerable amounts of assets. Note that the bank will also look into your credit, so make sure that you have a good credit score.

3.    Seller financing

With seller financing, the seller provide you a loan. However, it has to be amortized for a specific duration. In most cases, you can pay back the loans using the revenue that the business will be generating. Using this option comes with many advantages. One advantage is that it is simple: if you compare it with other sources like bank loans, it is less tedious. You may find that it is cheaper than other ways of funding. By asking for seller financing, you also get to enjoy the benefit of the seller giving you detailed information concerning the performance of the organization. Nevertheless, there also will be some expectations from you by the business owner. Can he trust you? To affirm this, he will have to do due diligence. Also, he might be interested in your business plan, your experience in the business world and your assets in case the business fails after transferring ownership to you.

4.    Leveraged buyout (LBO)

An LBO refers to a situation whereby a business is bought through both debt and equity. The cash flow of the company is what is looked upon to settle the purchase. The advantage of this type of arrangement is that you will get the chance to make the most of the profits the business is making and minimize the losses. Remember that only part of your assets is used as the collateral.

5.    SBA loan

This is government-backed loan where the Small Business Administration guarantees you a flexible small business loan with low interest rates. These are worth different amounts, and they gives you a better chance of getting loans from banks, who would typically have a hard time doing so due to the possible risk associated. SBA offers a variety of loan programs, which are all dependent on your growth plan, financial need, and other factors.

If you are not sure of where to get the funds to finance your acquisition, you can use one or more options above. At the very least, you should now be aware of the different types of options to fund your small business acquistion.

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