Getting a loan to buy a business
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When you’re looking to build a successful business, there’s no rule saying you have to start it from scratch. In fact, buying an existing business can be a smart and efficient way to enter the market. It offers numerous advantages, such as an established customer base, existing cash flow, and proven business models. And if you have the right experience, you may be able to get a business loan to buy an existing business.
Why Buy an Existing Business?
Immediate Revenue: Start generating income from day one with an established customer base.
Proven Success: Benefit from a business model that has already been tested and refined.
Existing Relationships: Leverage existing supplier and customer relationships.
Lower Risk: Reduce the uncertainty and risk compared to starting a new business from scratch.
Can I get a loan to buy a business?
The simple answer is yes. Most traditional banks and alternative funding providers like iwoca are open to lending money to buy a business, depending on the circumstances of the purchase.
Given that buying a business is a risky proposition, lenders may be more stringent in their requirements, such as providing collateral or asking to see a business plan.
Types of loans to buy a business
Depending on your situation, there are a range of financing options you can use to buy a business.
Secured or unsecured business Loan
Funding a business purchase with a secured loan or unsecured loan is a common choice for owners that are looking to acquire a second company and need to generate funds to finance the purchase.
- Secured business loans require you to pledge assets as collateral, such as property or equipment, which can lower the interest rates and increase the loan amount available.
- Unsecured business loans, on the other hand, don’t require collateral, making them less risky for your assets but often come with higher interest rates and stricter eligibility criteria.
With an iwoca Flexi-Loan, you can borrow up to £500,000 with repayments from 1 day up to two years. You can get a decision within one day - with our record standing at 2 minutes and 37 seconds from application to money in the account.
Seller financing
Seller Financing this is a type of loan where the seller provides a loan to the buyer to purchase property, usually requiring a down payment which is followed by monthly instalments.
Asset Finance
Asset finance can also involve using your current business assets as collateral to secure a loan for purchasing a new business, like a secured loan. By leveraging the value of your existing equipment, machinery, or vehicles, you can obtain the necessary funds without impacting your cash flow.
The type of loans that you explore will depend on several factors such as how much money you need to borrow, your personal or business credit score, repayment terms, and more.
What is required for a loan to buy a business?
- Business credit score: Loan applications will vary from lender to lender. However, providers will assess your personal and business credit score - if you own a business. Your credit score is important because it helps lenders to determine how much to offer and how likely you are to repay the funds. Find out how to improve your business credit score with our six-step plan.
- Collateral: Lenders may also require you to offer collateral - such as real estate or equipment - against the loan. The lender can claim this if you fail to repay the funds. Since purchasing a business often comes with uncertainty, it’s important to consider the impact on your personal finances or current business assets should you suffer any financial difficulties.
- Business Plan: Some lenders may also ask you to share a business plan that includes items such as financial projections, risk factors, and market analysis. This helps the lender to understand your investment intent, conduct a risk assessment, and provide a fair decision on your application.
How to apply for a loan to buy a business?
The application process for a loan to buy a business is similar to other types of loans. Some of the steps that you may want to take include:
- Determine your borrowing needs: how much money will you need and your ideal repayment length.
- Assemble your financial statements: ensure that you have your financial statements ready and available to provide.
- Evaluate different lending options: research different loan types and investigate lenders to locate a suitable provider.
- Complete your loan application: work through your loan application and submit any supporting documents.
- Wait for a decision: allow the lender to conduct any relevant checks and make a decision based on your application.
- Sign the loan agreement: if you’re happy with the offer, then it’s time to accept and sign the agreement with the lender.
- Receive the funds: once you’ve signed the agreement, you’ll receive the funds and can start using them however necessary.
An iwoca Flexi-Loan is a flexible, fast route to accessing the capital you need for your business purchase. You can borrow up to £500,000 for as little as 1 day up to two years. Get a decision within one day, with funds in your account in hours.
Alternative ways to finance buying a business
You may also want to consider alternative funding options to finance the purchase of a new business. Some of these may include higher fees or collateral, so it’s important to do your research. Alternative options include::
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