How to Finance a Business Purchase

When planning to purchase a business, there are many factors to consider with finances being one of the most important.

You may be exploring different options. One such option is funding the purchase yourself through savings which is something most are not able to do, or like many people, you may consider a business acquisition loan. We understand how important it is to make the right decisions when it comes to purchasing a business as this can have a huge impact on how you move forward with the running of it. We have broken down the benefits of buying a business, how to evaluate it to decide if it is the right choice for you and how a business acquisition loan could help you.

What are the benefits of buying a business?

There are many advantages to purchasing an established business and it differs hugely from starting your own business from scratch. There should already be a business plan and marketing method in place as well as a reputation to build on rather than establish.

• The business will have demonstrated to you that there is a market for the service or product they are offering
• The groundwork to start up the business will have already been done
• The business may have loyal, established customers, and a network of contacts.
• Initial problems will have already been solved
• The business may have a team of existing employees to save you time on recruitment

How to evaluate a business before purchasing

There are many considerations to make before purchasing a business and a full evaluation of the business should be done before any decisions are made. You want to make sure that you know

• The market conditions
• Customer and supplier diversification
• Comparable company analysis
• Size and maturity of the company
• How similar businesses compare
• Past and forecasted earrings
• Cash flow stability

Business Acquisition vs Franchising

It is important to understand the differences between purchasing a business and purchasing a franchise. When purchasing a franchise, you are only buying the rights to certain aspects of a business as opposed to purchasing the business itself. Whilst you are still responsible for that franchise and the running of it, you do not hold the same rights or responsibilities as the business owner. We can offer support for both options but if you are specifically looking to purchase a franchise, we can help you decide which finance option would suit you best.

Available funding options

When deciding how best to fund your business acquisition, unless you can fund the purchase yourself, you will need to choose between debt, equity, or a combination of both.

• Business loans
• Commercial mortgages
• Asset finance
• Alternative methods

Depending on your type of business acquisition your funding may vary. However, we will go into further detail about funding options:

Business loans

Probably the most popular option for most people looking to purchase a business and with good reason. A business loan can be a brilliant option when looking to purchase an established business as it is viable and comes with a realistic value. This will mean that the lender will look at it as less risky.

Everything will be decided on an individual basis depending on circumstances and whether you want an unsecured or secured loan.

Commercial mortgages

If you are looking to buy business premises, commercial mortgages can form part of a wider business finance package. You will be expected to pay a large deposit and rates can vary massively so you will need to do your research.

Asset-based lending

Used mainly for buying equipment and may be an option in circumstances where you need to make additional purchases on assets that aren't included in your business price.

Alternative methods

If none of the above fit with exactly what you are looking for, there are other options. These include crowdfunding, peer-to-peer lending, equity funding, investors, or business angels. You may also be considering looking at your own personal finances to see if there is anything you can change to allow for the extra expenditure. These might include taking out a second mortgage or borrowing from friends and family.

Of course, these options do come with their own risks and we do advise that you seek professional advice before making the decision on how best to fund your business acquisition.