For those interested in buying a business, one of the most critical steps is securing the funding. Understanding your financing options is key to a smooth process. Here are some of the best avenues to explore:
Self-Funding: If you have the cash to purchase a business in full this can make you a very attractive prospective buyer. Sellers may be willing to discount their price for a quick and problem free closing.
SBA Loans: A Small Business Administration (SBA) loan is often a go-to choice. These loans are government-backed and offer favorable terms, including lower down payments and longer repayment periods. The trick lies in finding a competent and experienced lender – this is where we as your business broker can be an invaluable resource. We will connect you with lenders who have a proven track record of successfully closing SBA loans.
Home Equity Line of Credit: If you’re a homeowner with significant equity, consider a home equity line of credit (HELOC). This option allows you to borrow against the equity in your home, potentially providing a substantial source of funds for your business purchase.
Rollovers for Business Start-ups (ROBS): ROBS lets you utilize funds from an existing IRA or 401(k) to finance your business acquisition. It’s a complex process, requiring a specialist to set it up correctly in order to avoid adverse tax implications. When the time comes we can recommend reputable providers to ensure this is done correctly.
Signature Loans: Banks and credit unions offer signature loans based on your creditworthiness. Additionally, online resources are emerging as viable options. For instance, Lightspeed Lending, has been endorsed by reputable sources including Fortune Magazine. However, we advise due diligence as experiences with online lenders can vary.
Seller Financing: Sometimes, business sellers are open to financing part of the sale. While 100% financing is rare, partial seller financing can be a practical solution. Discuss with your business broker if this is a feasible option for your targeted acquisition.
A “Rich Uncle”: If you’re fortunate enough to have one, now may be the time to start sending birthday cards. More Seriously if you have a good relationship with a wealthy individual or group of people, they may be willing to act as an “investor”. Funding you and your acquisition. However, if using an investor they must become part of the process from the earliest stage to ensure they are fully on board. Thus maintaining your creditability with both seller and Broker.
Remember, each funding option comes with its own set of pros and cons. It’s crucial to assess your financial situation and consult with financial advisors and your business broker to find the most suitable path for your business purchase.
The author Anthony John Rigney is the Broker and Owner at Quorum Business Advisors. A leading Florida based business brokerage.