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How to Get a Loan to Buy a Business (UK)

If your business is doing well, you might be considering buying another one to gain control of your supply chain; or, you may be looking to enter into a new industry. If so, then you can consider applying for a loan from a lender specialising in business finance.

That being said, loans for buying a business are quite complex, and you should always get expert advice before going ahead. And like all forms of finance, there are risks involved. They aren’t always the right answer.

Let’s take a look at a brief step-by-step guide on getting a business-buying loan, and then some of the pros and cons of financing your expansion.


Step 1: Determine Your Needs

Before you approach a lender, it’s a good idea to have a handle on exactly how much money you need, and what for. You can identify businesses that you would have interest in buying, figure out a likely cost or an average cost, and seek finance for that amount.

At this stage, you can compare costs and benefits. You may find that vertical growth will give you a better return on your investment, but may be more expensive in the short term, for example.


Step 2: What Kind of Loan Do You Want?

There are different sources from which you can acquire a business loan, or funding in a more general sense. This means that if one avenue is closed to you, another may be open that you could consider:

  • Bank loan to buy a business (UK)
  • Credit unions
  • Seller financing
  • Private investors/angel investors
  • Friends and family

Evaluate your options carefully, preferably with a financial professional, before you make a decision.


Step 3: Identify the Loan Terms You Can Get

The next step is to compare your borrowing needs with your financial capabilities. You can do this by talking with several lenders at the same time and getting a best offer comparison. Loan terms vary, as in all kinds of finance, and the lowest rate deal may not offer the flexibility that you need.

The point of this step is to help you identify whether your plan is affordable. If the terms of the loan and its repayment are beyond what you can pay, then you should look at other routes, such as building a start-up from scratch or looking for funding elsewhere.


Step 4: What Do Lenders Need From You?

Now you know your financial situation, it’s time to get in touch with lenders and find out more about their requirements. Again, as in other kinds of finance, business finance lenders won’t just lend to anybody. Lenders typically require the following information:

  1. Proof of identity
  2. Income documentation or cash flow statements for the last six months
  3. Personal tax returns and documentation on any debts you may have

Talk to your potential lender about what you’ll need and get it ready in advance.

If you already own a business, then you will need to provide information on that too, such as a financial statement. Talk with your accountant and they can arrange everything for you.


Step 5: Applying for the Loan

Once you have all your information together, contact your potential lender and go through their application process. If you have ever applied for finance of any kind before, you will already know that this can be a laborious process; applying for a loan to buy a business is no different. Be prepared to be rejected, to have to send and resend lots of paperwork, and to find the application stressful.

Some lenders will allow you to apply online, while others won’t; if this is something you value, shop around and pick a lender that does.


How Long Will It Take?

Once you apply, the whole process typically takes anywhere between four to eight weeks. Lenders need to conduct an in-depth analysis on your creditworthiness and, if applicable, that of your business. That said, some may take longer than others; it depends on a number of factors, such as your credit score and the financial strength of your business.


Contact Chelsea Corporate Today

As you can see, getting a loan to purchase or expand your business is not as straightforward or quick as it may sound. Even so, there are many benefits that come with putting the right deal in place.

At the same time, there are reasons why finance might not work for you. We don’t need to elaborate on how and why taking out finance can go wrong.

As such, it’s vital that you have business buying experts on your side before you make a decision. For more advice on these kinds of topics, contact us today.