Small Business Acquisition Loan

As businesses compete and grow there are many mergers and acquisitions in the market. Strategic partnerships and joint ventures are formed between companies daily to maximize efficiency and exploit market niches. Sometimes acquisition loans are needed due to succession plans and the retirement of business owners. Whatever the reason is for a business to change ownership, there are some things that will be important for you to know.

Lenders do not like turn around strategies. If you want to buy a business that is performing poorly, you will need to have very strong compensating factors like liquidity and net worth. You may also mitigate this risk by owning a competing business that is performing well. Generally a poorly performing business will be very difficult to get a loan for.

If you are currently an employee of the company you plan to acquire, lenders may not require you to have as much skin in the game as outside buyers (ie. down payment money). This can be a significant advantage. In order to qualify for this incentive an employee needs to have 3+ years of experience in upper operations management in the business.

Projections or plans for the new business are helpful and will define your vision to the lender; however, don’t expect your lender to give you a loan based on those projections. You will most likely be given a loan based on historical trends. If there are inefficiencies in the business you plan on changing that will save the company money, make sure you explain these to the lender. These are items that can be added back to the business performance analysis and may get you more loan dollars.

Getting a small business acquisition loan is a great way to grow your business. It can be a strong way to beat the competition and pick up market share. Make sure you conduct a full due diligence analysis on the company you plan to purchase. This will help you demonstrate your industry expertise to the lender. Many good deals turn sour in the due diligence process.

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