Funding Options For Your Business Acquisition 6 months ago

Unless you’re the favorite of your rich uncle, you most likely will need to secure funding to buy your new business. Depending upon the type of business you chose, you could need anywhere from a few thousand dollars to hundreds of thousands of dollars.

So who do you turn to finance your business? You might need to get creative. Many new business owners used their own savings or cash in investments to fund their companies. Although combining personal and business finances isn’t usually recommended, some entrepreneurs have mortgaged their homes or property to obtain enough money to buy a business. Others used credit cards. Lines of credit are a good option for some. Once approved, the bank deposits the approved amount of money into an account for you, which you withdraw as you need it and pay back as you can. One advantage of this type of loan is you only pay interest on the amount you’ve withdrawn, not on the entire amount of the loan. If the business you want to buy is relatively low cost, a line of credit might be a good option for you.

Why is it so important to have adequate funding? Undoubtedly, there will be months when business is slow and you will need a cushion. The Small Business Administration (SBA) estimates that 50% of new businesses fail in the first year and a whopping 95% fail in the first five years. The number one reason? Lack of financing! If you have a particular sum of money in mind you want to start with, you should probably secure double that amount. Experienced entrepreneurs know that most businesses will take longer to get off the ground and business will progress more slowly than they expect. So having a generous financial cushion will soften the blow when times get rough, helping you avoid late payments and fees and will help you maintain inventory and funding for payroll. If you avoid these issues and are able to pay all of your expenses on time, you will improve your credit and be much more likely to be in business in five years.

So what do you do if the business you wish to buy is too expensive to be funded by a line of credit program? If you aren’t able to secure a conventional loan from a lender, seek help from the SBA. Their programs can help small business owners obtain loans they might not otherwise qualify for.  These loan guarantees assume some of the risk, so they are more attractive to banks. In addition to regular purchase loans, the SBA offers microloans of up to $35,000 for small businesses and not-for-profit child-care centers for the purchase of inventory, supplies, equipment and other items. SBA terms are usually 10% down for 25 years. One caveat: the American stimulus package enabled SBA to increase its guarantee from 75-80% to 90%, making the program even more attractive to lending institutions.

So now that you know how to secure funding for your new business, it’s time to start the search for your dream company at DealBackers.com. The site has a comprehensive listing of a variety of businesses, including independently-owned companies and franchises.