Running a company can be an exciting and rewarding venture. Though you can start your own, buying a business is an easier (and safer) option. From the moment you take over, you’ll have an established customer base and presence in the market.
Buying an existing business can be more costly than starting your own. If you want to buy a successful, reputable business, you may need to look into finance options. Loans and investments can help you fund the acquisition.
In this guide, we’ll discuss how to finance buying a business and explain the most popular methods. We’ll also share some tips on finding a profitable business for sale.
Finance Options to Buy a Business
If you’re wondering how to raise funds to buy a business (UK or overseas), you have several choices. The most popular way of raising finance to buy a business is to take out a loan. However, you can also look into seller financing, investments and crowdfunding.
Each method has its own benefits and drawbacks, and some are riskier than others. Factors like your credit score and the amount of money you need can affect which options are available. It’s important to explore each possibility and consider which would work best for you.
A common way of buying a business with no money down is to apply for a loan. Business acquisition loans are specifically designed for financing the purchase of an existing company.
- Unsecured loans do not require collateral. However, you will need a good credit rating to be approved. The amount you can borrow may be based on the business’s expected cash flow.
- Secured loans, or asset-based loans, are backed by collateral (e.g. commercial property or equipment). These are used for borrowing larger amounts, and often have lower interest rates than unsecured loans. However, if you default on repayment, the lender can seize your asset(s).
You can apply for a loan through a bank or a private company. Each lender will offer different interest rates and repayment conditions. Do your research to find one that works for you.
With seller financing (also called owner financing), the current owner lends you some or all of the funds to buy their business. Both parties agree on the repayment terms which are documented in a legal contract. This is a useful form of finance to buy a business if you don’t qualify for a bank loan.
In most cases, you will need to make a down payment. Most sellers would be reluctant to loan you the entire purchase price. However, you won’t need as much cash as you would if you were buying a business outright.
An equity investment is another popular form of funding to buy a business. This involves partnering with a private investor who partially or fully funds your purchase. In return, the investor will get a share in the company and its profits.
Some investors will want a say in how the business is run, while others act as “silent partners”. This means that they’ll invest money but won’t be involved in any other way. Investments can be incredibly useful, but they are difficult to obtain. You’ll need a watertight business plan and a good track record.
If you can’t get a loan or investment, crowdfunding through sites like Kickstarter is a great alternative. A crowdfunding campaign allows consumers to pledge money towards your business venture in return for an eventual reward. This may be a discount, free product or early access to a service.
While typically used for start-ups, you can set up a crowdfunding campaign to buy an existing company. This is a great way to spread brand awareness. It’s also less risky than a loan, as you only receive the funds if you reach your target. However, it may take a long time to raise the required amount.
How to Find a Business to Buy on Finance
Once you’ve decided how to finance buying a business, the next step is to find acquisition opportunities. When looking for a business to buy on finance, consider:
- The type of business. A company with tangible assets will be easier to finance than one without. Independent businesses also tend to be more affordable than franchises
- Size. Buying a small business on finance will be easier than acquiring a larger company. Smaller loans are easier to obtain and won’t require as much collateral
- Location. A city-based business will be more expensive than a company based in a small town or rural area
- Reputation. Lenders and investors will be more willing to finance an established brand with a loyal customer base
You’ll always find the best deals if you buy off-market. This is because you won’t face competition from other buyers, and sellers don’t have to pay extortionate fees. Speak to an off-market acquisitions specialist to get started.
Thinking of Buying a Business? Contact Chelsea Corporate Today
If you’re ready to buy a business, UK-based brokers Chelsea Corporate can help. We specialise in off-market business mergers and acquisitions, and we work for the buyer, not the seller. We’re committed to finding you a golden opportunity at a fair price.
With Chelsea Corporate, you’ll have exclusive access to our database of off-market businesses for sale. We’ll match you with a profitable company in your chosen niche and help negotiate a great deal. What’s more, we’ll handle all the hard work to guarantee you a smooth, stress-free acquisition.