A guide to three main ways to finance buying a business: seller financing, SBA loans, and investor capital. Each has different tradeoffs depending on how much control you want to keep and how quickly you need the money.
Financing your acquisition. In this video, I'm going to be going over potential loan options or financing with investor capital. So you want to buy a business but you don't have all the upfront capital? No problem. There's multiple ways to finance your acquisition and the right choice really depends on your personal goals. So let's break down seller financing, SBA loans and investor capital so you can choose the best option for yourself. The first option is going to be seller financing, which is the most flexible option by far. How it works is the seller lets you pay a portion of the purchase price over time, kind of like a loan from the seller. An example of this would be you're buying a business for a million dollars. You're going to give 500,000 cash on close. The other 500,000 is going to be paid back to the seller over 12 or 24 months, typically with a percentage interest rate as well. The pros are going to be less upfront money, no dealing with banks or investors. This also shows that the seller has confidence in the business when they're selling it, which is good for you as a buyer. Some of the cons are going to be not all sellers offer it. You have to negotiate this. It usually requires a large down payment. And keep in mind acquire.com helps connect buyers with sellers open to flexible financing options as well. So feel free to just ask our team and we can help you navigate which deals are a good fit for seller financing and which are not. The second option is going to be SBA loans. This is the best for low cost capital. So how it works is a loan backed by the Small Business Administration often requires around a 10 to 20% down payment. And the pros of this are low interest rates, longer repayment terms, and only need to be part of the purchase price upfront. The cons are going to be strict requirements and paperwork takes longer to secure funding. Some of the acquisitions that we've worked on SBA financing can take up to 6, 7 months, sometimes on the very long end. We've seen deals get derailed because of this process as well. And then the businesses must be based in the United States as well. This is going to be great for profitable businesses with strong financials. If you're looking at a debt option or a loan option, SBA financing is going to be the way to go. The third is going to be investor capital. This is where you trade ownership for funding. How it works is you bring in outside investors to fund the deal in exchange for equity. The pros of this are no debt to repay can fund larger acquisitions. And investors may provide expertise and connections essentially supporting you beyond just their capital. Some of the cons are going to be you give up partial control. Investors expect a return such as profit sharing or an exit strategy, and just more pressure to scale fast. And this is going to be best for buyers looking to acquire and aggressively grow multiple businesses. Maybe you're starting a whole company or a private equity arm. Investor capital is going to be the way to go in those instances. Just keep in mind you don't need millions in the banks to acquire a great business. At acquire.com, we help buyers find deals that offer seller financing, connect you with funding sources through debt, and make acquisition financing simple. So if you're ready to fund your next acquisition, reach out to us@acquire.com and we'd be happy to make this a reality. Cheers.
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