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Getting A Loan To Buy A Business In The UK: The Essential Guide

Are you looking to buy a UK business, but don’t have enough money saved up? Don’t worry – it is possible to get a loan for this purpose. In this article, the experienced team at Chelsea Corporate will provide an essential guide on how to acquire a loan to purchase a business in the UK.

We will cover topics such as what types of loans are available, and which ones might be best-suited for your needs; how lenders assess applications; and other considerations when applying for a business loan.

We also explain why it pays off to shop around and compare different options before settling on one lender.

Finally, we discuss some practical tips that can help ensure your application is successful. So read on if you want the inside scoop on getting the funding needed to buy your dream business!

Why Might You Need A Loan To Buy A Business In The UK?

If you’re an individual looking to acquire a new business opportunity, it’s rare that you’ll already have the money sat waiting in your bank account. While some potential business buyers are able to save up enough capital, borrow from family members or sell other assets to acquire the funds, most individuals will need to investigate other means of financing their purchase.

Even those with capital saved up may find it less risky, and will have a less noticeable impact on their standard of living, if they choose to borrow the amount needed to acquire their next business opportunity.

Similarly, even businesses looking to expand or acquire new assets may be required to seek out effective financing to fund their latest venture – that could include anything from a bank loan to private investment.

Whether you’re looking to purchase a small business, or a multinational, multi-million pound company, one-off and ongoing credit can be a godsend, and is often the only way you’ll be able to afford your business purchase.

Applying For A Business Loan In The UK

It is extremely common for potential business buyers to require a loan to finance their purchase. Before you apply for a loan, we suggest you identify why you need the funds and how much money you require.

What Is A Business Purchase Loan?

A loan to buy a business in the UK, whether it’s from a bank, private equity source or another provider, is (in theory) the same as any other loan you might consider taking out.

You arrange to borrow a certain amount of money, use it to acquire the business, and pay it back over a certain period of time, along with interest and any other agreed fees.

How Much Can I Borrow For My Buy A Business Loans?

The amount you can borrow will depend on a range of factors, including your credit history, the size of the loan you need and the type of lender you’re using. Generally speaking, larger loans will require more stringent criteria to be met.

How Do I Acquire A Loan To Buy A Business?

Banks, private equity firms or investors won’t just hand you money upon request. There are terms and conditions, requirements, documents, and other variables you’ll need to consider before applying for a business loan.

Nonetheless, there are multiple lenders across the United Kingdom, and if you diligently prepare and finalise your documents and improve your credit score, obtaining a business loan can be a smooth-sailing process.

What Are The Different Types Of Business Acquisition Loans Available?

The type of loan you get will depend on the size and complexity of your business purchase. Generally speaking, there are three main types of loans available:

1) Bank Loans – Most banks in the UK offer commercial lending packages to finance business acquisitions. It’s important to shop around for the best rates and terms as they can vary significantly between lenders.

2) Private Equity Loans – These are loans from a private investor or venture capital firm, usually with higher interest rates than bank loans. They are also more flexible when it comes to repayment terms and can be tailored to your specific needs.

3) Asset-Backed Lending – This type of loan uses the assets of the business you plan to buy as collateral for the loan. This is usually the best option for large, complex purchases that require a larger loan amount.

It’s important to note that no matter what type of loan you choose, there may be additional requirements or conditions attached to your agreement with the lender.

That’s just one of the steps where an experienced team of business brokers might be able to help.

Should You Buy a Business or Start One From Scratch?

Starting your own business from scratch can be exciting, but it can also be extremely costly, and start-ups / new businesses are prone to failure. For example, in 2022, approximately 1,843 new companies were start-ups, and a total of 5.9 million businesses were small to medium enterprises (commonly known as SMEs).

While these small to medium enterprises are the backbone of the economy, particularly in local areas of the country, a significant proportion of them do not survive.

In most cases, this isn’t down to a lack of care or attention for the product or service. In most cases, this is simply due to a lack of capital, causing cash flow problems which have knock-on, life-threatening effects on a business.

Starting a business requires incredibly detailed planning, developing a loyal customer base, developing your own brand and marketing strategy, hiring and training employees, and even retraining employees, and other important variables.

These are all extremely expensive and time-consuming costs which can cause serious issues across your business, particularly if you try and do any of them on the cheap.

Because these startups and SMEs are such a risk, lenders and loan providers will typically take on more risk, leading to higher interest rates, more stringent requirements and stronger financial data to back up your commercial enterprise.

While it’s true that buying a business, particularly in a good area of the UK, can be more expensive than starting your own, there are some incredible advantages which come along with that additional price tag. For example:

  • You take control of an existing business structure
  • The business is likely generating cash flow and is profitable
  • A customer base is established
  • Employees understand their tasks and objectives
  • The business has an established brand reputation
  • Patents and copyrights will be transferred to you

Of course, an important advantage to mention is that finding the right business for you can be relatively straightforward. Attributed to the advancement of technology, a simple Google search can generate millions of results that meet a business buyer’s criteria.

That’s where a team of dedicated business brokers can help.

Find The Right Business Opportunity For You

Here at Chelsea Corporate, our team of brokers can research and identify off-market sellers that meet your commercial requirements.

We can provide detailed financial analysis, helping you understand exactly what the business is bringing in, and we can even help you acquire the loan for a business purchase.

Our team can also help you with everything from paperwork to closing the deal; ensuring that your due diligence period doesn’t take longer than necessary. Most importantly, our team has access to a network of discreet, sophisticated business owners who are looking to pass on their life’s work with the right individual.

If you’re ready to take the first step towards purchasing your own business in the UK, contact us today and let one of our experienced team members help get you started.

Evaluating A Business Before Applying For A Loan

evaluating a business before applying for a loan

If you think that a business purchase is the right choice for your future, or your current business’ future, your next step should be evaluating the business’ financials and opportunities.

That can be almost impossible without access to a business financials – as such, a team of specialist business brokers are well worth the eventual cost. Off-market business brokers will not only be able to gain access to financial data, but they will also have experience in evaluating businesses and the market.

This is important because it’s not just about the initial cost of a business acquisition – but how much money you can make from that purchase over time.

Carrying Out Due Diligence Before Your Business Acquisition

Before you purchase a business, it’s important that you carry out all due diligence. Just like you wouldn’t buy a car without a test drive, a home without a visit or even an electric razor without scoping out online reviews, you wouldn’t buy a business without first understanding its profitability and assets.

Depending on the type of business you’re considering buying, some of the features and assets you’ll need to carry out due diligence on include:

  • Financials – Analyse the business’ financial data, such as its balance sheet and profit & loss statement
  • Employees – Review employee contracts and utilise recruitment experts to assess a potential pool of new talent
  • Assets – Determine what equipment is owned by the business and whether or not it needs replacing
  • Property – Inspect any property owned by the business and review rental or purchase agreements
  • Customers – Assess the quality of customer relationships with the business.

What Do You Need to Do Before You Assess Finance Options?

As part of your due diligence process, it’s also important that you carry out some essential research into the aspects around your chosen business. This is something that your business brokers should be able to help you with, however it is also possible (albeit more difficult) to undertake this research yourself.

Understanding Your Chosen Commercial Market

We wouldn’t advise anyone purchases a business within which they have no experience or prior knowledge. However, even if you are an expert in your chosen industry, it’s still worth carrying out a full market review. That way, you can be certain that you’re up to date on the latest trends and developments.

Some of the questions that you should ask yourself in regards to your chosen market should include:

  • What are the current market conditions?
  • How has the business performed in recent years?
  • Who are the biggest competitors?
  • What challenges does the market currently face?
  • What kinds of regulations or laws am I required to adhere to?
  • Are there any substantial market changes on the horizon, either due to legal changes, new technologies or changing demands?

Only when you’re able to answer these specific questions, and any others which are more relevant to your chosen industry and niche, should you consider buying a business.

Generating a sufficient down payment

In many cases, generating a down payment (similar to a deposit on a car or a house) is a great way of proving that you’re a good long term bet for the lender.

A good rule of thumb is to aim for at least 10-20% of the total price of the business, or 20-30% if possible. As well as providing proof that you are serious about making the purchase, it also reduces your loan repayment terms and will make lenders more likely to approve you for a loan.

Funds to cover interest rates

When you apply for a commercial loan, you’ll be charged interest. The amount of interest that you’re charged will depend on the lender, the business and your own financial situation.

It’s important to make sure that you have sufficient funds available not only to cover the principal loan amount but also the interest rate (and any other related fees or charges). Otherwise, you could find yourself in a difficult position if the business fails to generate enough income to cover the repayment costs.

Credit score considerations

As with any loan, your credit score is an important factor in determining whether or not you’ll be approved for a commercial loan.

It’s recommended that you check your own credit score before applying for a loan and make sure it is as high as possible. This can be done by checking your credit report, paying off old debts and making sure you have a good payment history.

In addition, some lenders may require that you provide financial statements and other paperwork to prove that you are capable of repaying the loan in full.

Debt-to-income ratio

When applying for a loan, lenders will also look at your debt-to-income ratio. This is the ratio between what you owe and what you make each month – if it’s too high then lenders may be reluctant to approve your loan application.

You should make sure that you have enough disposable income left over each month after paying off any existing debts, to cover the loan repayment costs.

It’s also important to make sure that you shop around and compare different lenders before deciding which one to go with. Different lenders may offer different rates and terms – so it pays to do your research.

Cash reserve to pay closing costs

You should make sure that you have enough cash to cover any closing costs. These are the costs associated with completing the loan application and include legal fees, appraisal fees and other related charges.

It’s important to factor these into your budget when considering how much finance you’ll need for your business purchase.

It’s also worth mentioning that, if you do use business brokers, you should make sure that you have enough remaining to pay them for their services. Brokers can save you a lot of time, money, energy and stress throughout the process, so making sure that you have enough to cover their fees is an important consideration.

Put Together A Business Plan

When you apply for a business purchase loan to buy an existing business, it’s important that you have a solid business plan. Existing businesses may well have business plans of their own in-place, but when you’re acquiring a business, it’s rare that you’ll be able to come in and simply allow the business to operate as normal.

Part of business ownership is being able to adapt and improve any existing business you take on. If you’re not able to do that, and you don’t have a proven track record or success, you may find it difficult to acquire a profitable business, particularly through secured business loans.

Negotiate Unsecured or Secured Loans Terms & Conditions That Suit You

Once you have your business plan in place, you can start to negotiate the terms of any loan that you are looking to take out. This is where many people make mistakes – they don’t properly understand what they’re signing up for or don’t realise that they can request certain changes.

For instance, if you want an unsecured loan, you can still negotiate the terms and conditions so that they are more favourable to you. It’s also possible to get a secured loan on better terms if you have property or other assets that can be used as collateral.

You should also consider your options when it comes to repayment periods – some lenders may offer longer repayment periods than others.

In most cases, it’s a better idea to leave as much of this side as possible to your business broker, who may be able to secure better business financing than you, yourself, are able to.

If you’re on this journey with a business broker as a guide, take the time to compare business loans, and don’t be afraid to walk away from a deal that doesn’t give you the terms and conditions you’ll need to become a successful business owner.

Acquiring The Loan To Purchase A Business In The UK

Once your due diligence is complete, it’s time to acquire a loan for business purchase. It’s important to recognise that each lender has their own criteria for loan approval and this can vary significantly from one institution to another.

That’s why it’s important to work with experienced business loan brokers who have access to a diverse range of lenders. They can help you find the best rate for your particular requirements, as well as provide guidance on the loan repayment process.

At Chelsea Corporate, our team of brokers are experts in the field and have access to a range of lenders who specialise in business acquisitions. We will work closely with you to identify your specific needs and find you the best rate for the loan that meets your requirements.

What Types of Business Loans Are Available To You?

buy a business financing

There are many different types of loans available if you’re looking to buy an existing business in the UK. These will, of course, depend on your credit rating as calculated by credit rating agencies, industry experience and history of making a success out of business acquisitions and business finance.

Unsecured loans

Simply put, unsecured loans are business finance options that don’t require collateral. This means the risk to you is much lower, but many lenders will still perform a credit check before approving your loan application.

Secured Loans

This type of lending requires some form of collateral in order for the loan to be approved. The most common form of secured loans is a mortgage on your own home or property, though you may also be able to use other assets such as cars, investments and savings.

Commercial Mortgages

A commercial mortgage can be ideal for businesses that need to purchase a property in order to operate. This type of loan usually involves higher interest rates than residential mortgage loans, and you may be able to negotiate better terms if you have a good credit rating or other assets to use as collateral.

Commercial mortgages are typically held against your business premises or commercial property, and are an effective way to borrow money to aid in business expansion or asset acquisition.

Asset finance

Asset finance loans are a type of secured loan which allows you to purchase business equipment and machinery with the lender’s money. This includes cars, vans, computers, photocopiers and other assets used in the running of your business.

Asset-based lending

This type of loan is based on the specific assets that a business owns. It is typically used to finance large-scale purchases such as property, equipment and other capital investments.

Peer to Peer Lending

This is an increasingly popular type of financing and involves businesses raising capital from individuals. It can be a great way to access finance quickly without the need for collateral or lengthy credit checks.

Other Sources of Funding that Might Benefit You

While those listed above are the most common ways that people in the UK go about purchasing businesses and business assets, they are not the only form of business funding available to you. For example, some other types of business acquisition funding include:

  • Angel Investors: These are individuals who invest in businesses, often in exchange for a share of the profits. While you can find angel investor networks online, you’re often best leaving this side to your business broker, who may be able to help you when it comes to raising cash to acquire a business.
  • Business Grants: These are financial awards from the government or other organisations that can be used to fund business acquisitions. While there aren’t too many business grants available at the moment in the UK, it’s worth keeping abreast of any national developments, as these grants are a great way to acquire unsecured lending to kickstart your business.
  • Government-Backed Lending: These are funds provided by central or local governments to help finance business activities.
  • Friends, Family & Personal Capital: This type of financing involves borrowing money from friends, family or personal savings to fund business acquisitions. While you may be able to acquire this capital with as little as a personal guarantee, be aware that it can put strain on your personal relationships, and if you fail to pay them back, you could risk the entire relationship.
  • Past Invoice Failure: If you currently run a business, you can sometimes use evidence of upcoming invoices as evidence that you have money coming in which could help with the business acquisition. These can be a great way of dealing with upfront costs and securing funding.
  • Venture Capitalist Funding: This is when an investor provides capital in return for equity or other forms of legal ownership. Venture capitalists are often willing to take risky investments where there is a promise of a high reward, so they can often be a great source for large-scale business acquisitions or merger costs.
  • Equity Finance: This involves selling a share of the business in exchange for capital funding. It can be a great way to secure funding and interest potential lenders in the success of your business.
  • Banks & Building Societies: There are a number of banks and building societies that provide lending for business acquisitions.

What Kinds Of Businesses Can I Acquire In The UK?

There isn’t a limit to the kind of businesses you can purchase in the UK. So long as they are a legal business, you’re able to invest or buy them outright. Most small businesses in the UK can be purchased for the right price, particularly if you have an experienced, dedicated team of business brokers on your side.

Your brokers will be able to source these businesses, contact small business owners and even arrange negotiations to lower the small business purchase price.

You aren’t limited to small businesses either. At Chelsea Corporate, we have extensive experience helping to negotiate large-scale acquisitions, and even mergers between large companies.

For Specialist Business Broker Services In The UK, Call Chelsea Corporate Today

Here at Chelsea Corporate, we can provide a complete range of services to help you when buying an existing business in the UK. Our experienced team have worked with a wide range of individuals and many businesses to acquire new assets and organisations, arrange seller financing and much more.

For more information on any of the services that we can provide, don’t hesitate to get in touch with our experienced team today.