If you are looking to purchase or start a business, the acquisition process can be stressful and complex. That is why it is so essential that you do your due diligence and secure the best financing available.

Financing a business acquisition can be done through traditional bank loans or SBA-backed business acquisition loans. The first step is deciding what kind of loan you require and how much money is necessary.

Bank Loan
If your business has good credit and an established track record, banks may be willing to provide you with a loan for financing your acquisition. Depending on the size and industry of the business, SBA-backed acquisition loans come in various sizes.

SBA 7(a) loan: This loan is an ideal way to finance your business acquisition as it comes with SBA guarantees and safety measures. It can cover 75% of the acquisition’s value between $150,000 and $5 million with terms up to 25 years.

Leveraged Buyout: Leveraged buyouts are a common form of financing for business acquisitions, as they involve using some of the business assets as security for purchase funds. This could be done with either debt or equity depending on how the deal is structured.

Earnout: This method of financing a business acquisition is popular, as it allows you to pay the seller based on their success over time. It’s often ideal for businesses with a stable customer base and proven growth patterns.

Personal Funds: If you have plenty of money saved up, it could be beneficial to tap into those reserves to finance your business acquisition. However, this can be costly and may need additional support such as an SBA-backed loan or seller financing.

Letter of Intent: This is a common practice when purchasing a business and it serves to demonstrate to lenders your detailed plan for the deal to go through. Additionally, it shows the business owner is serious about selling their enterprise to you, which helps get loans approved.

Other Creative Ways to Finance a Business Acquisition:
If you’re searching for ways to finance your business acquisition, you may have come across earn-outs and seller notes. These agreements involve the buyer financing part of the purchase price while keeping running until that amount is repaid by the buyer.

Other sources of financing include asset-based lending, insurance companies, and pension plans. Each source has its own model and criteria for providing funding acquisitions.

Lenders often require you to create financial projections before they approve your loan application. An online tool like ProjectionHub makes this process more efficient and time-saving, especially if you are in the middle of your acquisition. With ProjectionHub, you can create projections for potential buyers, lenders, and internal planning needs so that you have a clear idea of what needs to be done moving forward and how the transaction will impact your business.