A business acquisition loan can further grow your enterprise or facilitate the acquisition of an already existing business. Obtaining an acquisition loan can be challenging and oftentimes comes with convoluted prerequisites. Because the loans are distributed by different lenders, each has their own requirements that tend to differ. Generally, lenders that offer a business acquisition loan usually consider the following criteria when evaluating a potential borrower.
Prospective Business Financials
The lender will check the financials of the business you are looking to acquire as well as other businesses you own. It will then be determined how well the businesses will integrate together successfully.
Most lenders will ask that you provide a list of all known liabilities and debts that the business will be responsible for. Providing a schedule for when and how each will be paid off will help give lenders a better picture of how you will handle a loan debt. It also shows that you are on top of your game.
Status of the Industry
The lender will take a look at the prospective industry and determine what the combined businesses will look like in the market to make sure you can make good on the loan in the established period time. It’s best if all involved parties have substantial business experience in the same industry. As the borrower, you should be able to prove to the lender that you’re knowledgeable in the industry and can manage the business, while also providing detailed numbers on projected sales.
Provide a Signed Letter of Intent
The lender must receive a signed letter of intent in order for you to receive the term sheet. This is a requirement that cannot be circumvented. It is advisable to include in the letter that the terms hold true only if you can receive financing. If financing cannot be received then it should be made clear that the letter of intent is void.
Financial Statements and Forms
The borrower information form will allow the lender to obtain information that pertains to any government financing that you or your partners have received either currently or in the past. Financial statements must be turned over by every business partner who will have at least a 20% equity in the business, according to the Small Business Administration. This, along with your credit score will help determine whether you will be able to make good on the loan. You and your business partners must also turn over 3 years worth of personal and business tax returns. Many lenders will ask for business financial statements as well such as profits and losses statements.
Integration Planning Experience & Operational Know-How
Before a lender hands over a large sum of money, they will want to know that the borrowers have the integration planning experience needed to be successful. After the merger or acquisition has happened, do you have a plan to integrate the new business into the parent company efficiently? It is advantageous to have a solid plan in place to show that the merger or acquisition is to be successful. It is also important to prove that you have the right operational know-how to successfully manage day-to-day tasks.
How Much Equity Are You Putting In?
Lastly, the lender will want to know how much of a down payment you have to put down on the business you are trying to purchase. The minimum down payment requirement varies from lender to lender, but many want to see a down payment of 20% of the value of the business.
What Can a Business Acquisition Loan Be Used For?
A business acquisition loan can be used for the following:
- Purchasing an established business
- Buying a franchise
- Buying out a partner of an established business
Types of Business Acquisition Loan Lenders
When it comes to vetting your options, you have a choice as to which type of lender you choose when applying for a business acquisition loan. The two primary types of lenders include:
- Traditional lenders – These types of lenders include banks and credit unions. They are known for having a lengthy application process, a longer approval process, and stricter requirements in order to get approved for a business loan.
- Alternative lenders – This group of lenders are known for their new-age approach to lending. They use state-of-the-art financial technology that significantly speeds up the lending process. This means borrowers receive funds much sooner than the traditional lending processes. Alternative lenders also offer a variety of loan options for vendors. LQD Business Finance is proud to offer alternative lending solutions. We are able to underwrite more risk for the return where a bank only takes the prime borrowers with a perfect credit history.
Benefits of a Business Acquisition Loan
When it comes to acquiring a business, a business acquisition loan offers a myriad of benefits. They give you the ability to own a business much quicker than you would traditionally be able too. LQD Business Finance’s 6-month to 36-month terms allow you to use the business acquisition loan as a stepping stone to help your business continue to grow.
Ready to Secure a Business Acquisition Loan?
LQD Business Finance provides a transformative, new-age approach to lending. Our innovative technologies and processes deliver solutions up to 3x faster than conventional lenders all while providing world-class customer service. LQD Finance takes the time to understand your business plan as well as your future goals. Our experts then devise a custom solution that is of a higher caliber with more sophistication and flexibility than anything you will find on the market. LQD Finance believes in entrepreneurs and works quickly to help you get the financial funding you need to see your dreams become a reality. Apply for a business acquisition loan with LQD Business Finance today!