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A true entrepreneur can never be really be satisfied with a small time business, what you need is a full-time, productive, and profitable business. One of the best ways to get that is to buy a business that has already proven itself in the market. However, buying a business can get extremely costly and business financing is never an easy task.
Obviously the perfect solution would be to buy the business upfront, but sometimes you may not have a huge sum of money on you. Your best option would be to consider business financing. It will cover everything starting from the loans to seller equity. In this article we give you a brief look at business purchase loans, personal equity, and all the needed information about business financing.
You need to do all your homework to get the best out the current highly competitive market. Let us start from the basic, personal equity plays a very important role in any type of business acquisition. Personal equity refers to the sum of cash that you can put towards the new company on your own. Now the best situation would be where you can finance the purchase yourself, this way you can avoid the loans and paperwork which can come up after making the deal.
But perfect situations hardly exist; therefore, without a doubt you are going to need some other source of financing. These other sources of financing are going to need you to pay a decent bit of the burden, which can be anywhere between 25% and 50% of the full amount. It makes perfect business sense as who will invest in a business when the person buying it seems unsure of putting his own money at stake. So, make sure you have some cash on you and that you can afford to lose the amount in the case of a disaster.
Seller equity is also important when it comes to business acquisition. Seller equity refers to the seller taking up a portion of the cost which acts like a loan to the buyer so as to ensure that the deal follows through. The buyer later pays back the investment made by the seller including interest once the business starts making profits for the new buyer. Several companies offering business purchase loans may need seller equity as part of the contract. Seller equity is also required when the buyer is unable to afford a front-up amount of buyer equity.
When you have the up-front cash with you, via buyer and seller equity, you can think of applying for a business purchase loan. There are numerous lending houses in the business world; banks are clever places to find suitable loan options, especially if you have a sure-shot plan for success. Business financing requires you to have a clever business plan; this can demonstrate how you plan to profit and make money. You have to convince your lenders that you will do a much better job than the previous owner and that you can tip the scales towards success.
The big problem here is the fact that banks and lending houses are “safe investment” solutions. Realistically there is only a one in five chance of you getting a serious business purchase loan from a lending house or a bank. And if you are unsuccessful getting the loan from a bank, you have to start looking for others means which can help in financing your business.
If you have a business plan that is new, if you think that you can turn a old poorly performing company round or you mean to take your business somewhere no one has been, you ill need to look for a different approach to your business purchase financing.
Venture capitalists can come to your rescue; these capitalists are extremely wealthy who put money in a business when they see possible potential to earn it big. These capitalists are behind most of the ambitious private projects.
The problem here is that these businessmen/businesswomen are no fools; they may be willing to take risks in a business but calculated ones. It is essential for you to have a certain plan and it is important for you to sell your idea to them. You need to convince them that you and your idea are worth investing in.
However, keep in mind that these venture capitalists will not give you business purchase loans; instead they will buy into your company. They will have some say on what you can or cannot do with the newly bought company. This is a major reason why business owners try and avoid taking the help of venture capitalists.
To help businessmen/women to purchase business, the United States came up with U.S. Small Business Administration Loan Guarantee Program (SBA). The government offers business purchase loans to small business owners who are looking to acquire a company and need help with financing.
It may be a government program but that does not mean that anybody can get a loan. To get a loan the applicant needs to meet many rigorous demands, it is crucial that you have a clever business strategy, and you need to able to convince them. But even then, these loans are much easier to obtain rather than loans from lending houses and banks. Also SBA loans are not as controlling as venture capitalist investments.
Also, it can help your case if you can get seller equity, this can act as a demonstration that the seller has faith in the buyer to run the business/company at profit so that he/she can pay back the seller later.
You can also take the help of the numerous financing options and companies out there to help you out with this process. You can hire an accountant if you feel, this can help you save time and effort and maybe money in the long run. A financing company can help you with business financing as well; it may lead to better profit and a better loan in the upcoming years.
Hopefully, this article gave you adequate information about business purchase loans and the other aspects of business financing as well. Next time, when you consider buying a company, keep in mind the above to make the best and the wisest decisions.
Merchantcreditadvance.com can help you make the right decision when it comes to business purchase loans. We've done all the hard work for you; do visit us if you are really looking for expert advice.
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