How to Use an Acquisition Loan to Expand Business
An acquisition loan is a loan that one business uses to acquire a strategic asset or possibly another business. These purchases typically can’t be made with the normal cash flow of the business, so they take out a loan, so they don’t have to raise capital. By using an acquisition loan, the company can make large purchases with as little as 15% down and pay off the balance over time.
Acquisition loans are common for companies that are growing and those that are actively engaged in acquisitions and mergers. They may also be used by companies that require large equipment such as large contractors, construction companies, and data storage providers. An acquisition loan can help these businesses acquire the assets or companies they need to grow their bottom line.
5 Types of Business Acquisition Loan
When it comes to business acquisition loans, there isn’t one specific type. There are actually several types of loans that can be used to acquire assets and other companies, and each has different advantages, depending on the situation. It’s important to keep in mind that not all are appropriate for every organization.
• SBA Loans
• Conventional Term Loans
• Startup Loans
• Business Line of Credit
• Revenue-based Loan
The qualifications and terms of each vary and each one has very specific advantages in certain circumstances. They may offer fewer fees, lower interest rates, longer terms, increased flexibility, or interest-only payments for a certain period.
Qualifying for a Business Acquisition Loan
Qualifying for a business acquisition loan is basically the same as the process for any other business loan. First, you need to identify the reason you need the loan. Then, you need to determine the best funding option for your situation. Next, you need to choose a lender that specializes in that type of funding. Once you’ve done all this, it’s time to go through the application process.
This will require completing forms, providing documentation, and answering questions the loan officer has about your funding needs.
There are some key criteria that lenders use to determine whether or not they should approve your application:
• Business credit history/score or personal credit history/score if your business doesn’t have the established credit
• Revenue reports
• Down payment most lenders require at least 10% but may require more based on your credit profile
• Reason for requesting the loan in the first place
It’s very important to understand that there are cases when a small business will not qualify for a loan to acquire large assets or another company. If your application is denied, you may still be able to get the funds for your acquisition- you may need to raise equity capital or get a co-signer.
If you are interested in learning more about getting a business acquisition loan, contact Master’s Commercial Capital Group. We can guide you through the process.