When the opportunity for growth presents itself, savvy entrepreneurs jump at the chance to expand their businesses and create future success. Sometimes this manifests in the form of acquiring another business or a share in an existing business. Business acquisition is a great method for quickly starting or expanding a business, as it eliminates many hurdles presented in a start-up business scenario; however, purchasing an existing business can be more costly than starting a new endeavor. Securing a lending source for business acquisition is the primary starting point in finalizing the purchase.
The Role of SBA Loans
Government agencies and private lenders alike see the potential in acquisitions and work to create beneficial lending options for businesses. For individuals interested in buying a business who currently are not in that business or industry, the US government can guarantee a loan through the Small Business Administration (SBA). An SBA loan is a tool used to get businesses to operate for themselves and create profit. SBA loans provide up to ninety percent financing for an acquisition, leaving the acquiring individual to secure ten percent of their own funding. SBA loans are offered through individual banks, with the caveat that the government will guarantee up to seventy-five percent of the loan amount for the bank. The remaining amount loaned by the bank is known as the “bank’s exposure,” or what the bank is risking if a loan is to default.
SBA loans are secured through a variety of assets. These assets most likely present themselves in the holdings of the existing company that is being acquired. Like any other loan, principal and interest is paid monthly with options for fixed or adjustable interest rates.
Utilizing an SBA product to purchase an existing business allows for rapid expansion and growth. SBA loans and lines of credit are designed to get a company up and running as quickly as possible. For a new business owner, this provides the unique ability to lessen the risk of start-up venture issues. An existing business typically has a revenue base fully instated and operational, and once funding for the acquisition is secured through a broker or lending agent, the road to success awaits.