There are many individuals who plan on acquiring a business loan to start a startup company, but there are other people who do have ulterior motives in mind. You may be part of the small circle of entrepreneurs who are thinking about purchasing another business instead of building one from scratch.
But do know this – buying a company is always going to be a huge undertaking, and you’re going to ask yourself, “how to apply for a business loan?” Many banks and financial institutions will set high standards for both you (as the purchaser) and the business that you’re going to buy. All of the requirements need to be met before the loan application can be approved. Do note, however, that it’s not going to be an impossible feat. Albeit it might be a difficult endeavor, getting your loan application approved by no means an unattainable outcome. Here are some helpful steps to help you in acquiring a business to buy a company.
Know the Type of Loans You Can Get
The term “business loan” is the main category, and it branches out to many different classifications. Some of the business loans that you can find include the following: SBA Loans, Rollover for Business Startups (ROBS), HELOC & HEL, Seller Financing, and Family & Friends Loan. If you’re looking to purchase a company with the longest repayment terms and the lowest interest rates, then SBA Loans might be your primary choice out of all the items in the list of selections. You can also take advantage of HELOC & HEL, but you can also apply for this business loan if you have over 20% equity in your home, and you’re okay in submitting your personal home as collateral for the purchase of the company.
Be Prepared for the Initial Inquiry
Buying a business is no laughing matter, even for the financial or lending institution. The financial organization or bank will be loaning you hundreds, thousands, and perhaps even millions of cash to fund the upcoming purchase. Hence, there’s going to be a strict timeline involved in the process, and it may take a while before the final result of the loan application gets known. However, just like any stairs to climb, there’s always going to be those first few steps before you can reach the end. In the case of applying for a business loan, you’re going to start with the initial inquiry. In this period, you’ll generally sign an NDA while receiving some basic information. Lending firms and banks tend to like to receive a letter of intent in buying a business within the first week of you receiving any introductory data.
Request for a Full Company Review
Once the letter of intent (LOI) has been accepted, and you’ve already submitted all other required documents asked by the bank or financial institution, then you need to review all the information on the company you’re planning to purchase. Since you’ve already made your purpose known, you can now ask for any piece of information you want from the seller. Also, the seller is required to provide all the necessary details for the deal to move forward. During this time, you can carefully plan out and decide if you’re going to proceed with the loan application or not.
Keep in mind that there are some business acquisitions that some banks and financial corporations don’t like to receive because of the large risk factor involved. These acquisitions include the following: restaurants, grocery stores, vice industries, hard-to-explain products, and businesses that rely heavily on one customer.