Business acquisition loans are available through traditional financial institutions like banks and credit unions, as well as online lenders and lenders that work with the SBA.
Banks and Credit Unions
Banks and credit unions often provide competitive rates and terms for acquisition loans. Business acquisition loans from banks and credit unions typically require a sizable initial down payment.
Qualifying for these loans generally requires a credit score of at least 700 and a minimum of two years in business. Applicants must also have a well-prepared business plan supported by viable past financial records demonstrating cash flow, liquidity, future viability and collateral (if required).
Online lenders can offer more flexible terms and faster funding speeds than traditional banks or credit unions. However, their interest rates tend to be higher, and repayment periods may be less flexible.
Qualification requirements may be less rigid than those for traditional loans. For example, borrowers may only need a credit score between 630 and 689, and collateral may or may not be required. Still, lenders typically require evidence of good credit, collateral and a solid business plan.
The SBA works with participating lenders to provide a range of loan programs to eligible businesses. Government-backed SBA loans come with more flexible terms (up to 25 years) than some small business loans and can be used to acquire, operate or expand a business. Interest rates are also competitive and pegged to the prime or standard base rates.
These loans may still be difficult to qualify for, and not all businesses are eligible. The application and funding processes are also longer than other types of loans, so SBA loans may not be a good fit for borrowers who need to close a business purchase quickly. For example, funding for the SBA’s popular 7(a) loan program can take up to several months—though SBA Express loans can offer a faster timeline.
Outside of more traditional sources of financing options, there are a few alternative options to consider when looking for business acquisition loans. These include crowdfunding campaigns, venture capital firms, private equity firms, angel investors or family and friends. While each funding source has unique requirements and considerations, they can provide invaluable backing to entrepreneurs looking to purchase a business.