Getting a loan to buy a business

You’ve found a business that you want to buy. Now it’s time to think about how you’ll finance this purchase. We discuss how to get a loan to buy a business and the alternative funding options to consider.

15 June 2022

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. There are several loan types that may be suitable when buying a business:

Business Loan: suitable for business owners that are looking to acquire a second company and need to generate funds to finance the purchase.

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.

Personal Loan: if you’re buying a business as an individual then a personal loan may be the most suitable option to fund the investment.

Home Equity Loan: allows homeowners to borrow money against their properties, and is often referred to as a second mortgage.

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:

1 - determine your borrowing needs: how much money will you need and your ideal repayment length.

2 - assemble your financial statements: ensure that you have your financial statements ready and available to provide.

3 - evaluate different lending options: research different loan types and investigate lenders to locate a suitable provider.

4 - complete your loan application: work through your loan application and submit any supporting documents.

5 - wait for a decision: allow the lender to conduct any relevant checks and make a decision based on your application.

6 - sign the loan agreement: if you’re happy with the offer, then it’s time to accept and sign the agreement with the lender.

7 - receive the funds: once you’ve signed the agreement, you’ll receive the funds and can start using them however necessary.

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.

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::

words by <span>{authorName}</span>

Charlotte is a Senior PR & Communications specialist at iwoca. She's been sharing news and insights about the finance industry for over three years.

Article updated on: 15 June 2022

Is this article helpful?