Loans to Buy a Business

Loans to buy a business are sometimes easier to acquire than loans to start a new business. Although today, loans are difficult to obtain for any business purpose it is still possible to find ways to finance the purchase of a business. You just have to be creative sometimes.

After you and a seller agree on the value of the business, the next step is to negotiate payment terms. It is usually to your advantage to negotiate the highest seller carry-back you can. The more you can get a seller to take on contract, the easier it will be to find loans to buy a business.

It is also easier to acquire outside financing if you have invested a good portion into the sales price yourself. Any investor, whether it is a bank, an Angel Investor, or a Venture Capitalist, likes to see the buyer with some skin in the game.

To come up with the rest of the money, you should read the section on Small Business Financing. This section gives many different sources for business financing and you might want to check out several of them.

However, unless you have some extraordinary plans for the business you are buying, there will be little interest from Venture Capitalists, or Angel Investors…they don't make loans to buy a business, they are primarily interested in investing (buying stock) in businesses so they can make back many times their investment. That is not to say that these investors would not be interested if you had a business plan to take the acquired business to a new level of revenue and profitability.

At the same time, more traditional lenders like banks and other financial institutions are much more willing to loan on the purchase of an operating business (especially if it is highly profitable) than they are on startups. G.E. Capital became a giant force in the finance world by loaning money to buyers of new businesses, and there are others that have done the same. In today's business climate, I would suggest you start with your bankers and discuss your funding requirements with them. If they are not interested, they should make contact with a third party lender that may be interested in your business acquisition. If your banker can't help you, try another bank, and also tap into the resources of your mentors and advisors.

There are also many government programs available and again, your banker should be able to direct you to the right contacts for these programs.

So, basically, the money for buying a business needs to come first from first you, the buyer, secondly, from the seller, and for whatever remaining amount required, you will have to seek out third party financing. The easiest of course, is for you and the seller to negotiate the terms of the sale such that you will not need any third party loans to buy a business.

Assuming you and the seller have agreed on the price and terms of the sale, you need to make sure they are all contingent on the results of your due diligence. You can learn more about Due Diligence here.