Business acquisition loans are specifically designed to fund the acquisition of an existing business or franchise. These small business loans are available from banks, credit unions, and online lenders.
The best business acquisition loan is the most affordable option available to meet your needs.
To better understand the unique needs of your business, we'll begin by completing a short survey.
Once you find your perfect match, our team will be happy to guide you through the next steps of the process.
What is a Business Acquisition Loan?
Business acquisition loans are used to acquire a business, whether that be buying an existing business, becoming a franchise owner, buying out a business partner, or buying the business assets of another company. How the funds from a business acquisition loan are used is determined by the lender.
Banks, credit unions, online lenders, and local lenders may offer business acquisition financing, including Small Business Administration loans. For example, you could use an SBA 7(a) loan to acquire a business or increase your ownership share in an existing business.
How do business acquisition loans work?
Business acquisition loans are typically structured as term loans, where the borrowed amount is repaid over a set period of time with interest. However, in some cases, a business line of credit may be available during the business acquisition.
Loan amounts, interest rates and repayment terms vary by lender.
Where can I get a business acquisition loan?
Business acquisition loans can be obtained from a variety of sources, including:
Banks and Credit Unions
Banks and credit unions can offer low-interest, long-term business acquisition loans. These loans are a good option for well-qualified borrowers who don't need cash right away.
To qualify for a business bank loan, you typically need good personal credit, a multi-year business track record, and a strong financial standing. Not all banks and credit unions require physical collateral, but providing this type of collateral can help you qualify for larger loan amounts and lower interest rates.
However, business acquisition loans from banks and credit unions take longer to fund and often require a lengthy application process.
SBA Lending Institutions
SBA loans are issued by participating financial institutions (usually banks or credit unions) and are partially guaranteed by the Small Business Administration. These loans have flexible terms and low interest rates and can be used for many types of business acquisitions. However, like traditional bank loans, SBA loans have strict requirements and can take a long time to fund.
To qualify for an SBA loan, you typically need high annual revenue, at least two years of business history, and a personal credit score of at least 690. However, some SBA lenders may have lower credit score requirements.
Also, if you're using an SBA loan to buy a business, you'll likely need to come up with a down payment of at least 10% of the total loan amount. In some cases, you may need to put up additional collateral.
A standard SBA 7(a) loan can take anywhere from 30 days to several months to fund. As an alternative, SBA Express loans offer faster funding times but smaller loan amounts and slightly higher interest rates.
Online Lenders
If you need funds faster or don't qualify for an SBA or bank loan, consider a business acquisition loan from an online lending company. Online lending companies, such as Funding Circle, offer acquisition loans in amounts up to $500,000 and terms up to seven years.
Online lenders generally have less stringent requirements than banks or credit unions. If you have fair credit (FICO score between 630 and 689), you may be able to qualify for a business loan, and you may not need to provide physical collateral. Online lenders are especially likely to work with startups that have strong financial positions.
Additionally, while bank or SBA loans can take weeks to fund, online business loans can often be funded within days. As a trade-off for the ease and speed of approval, online lenders often charge a higher annual percentage rate (APR) than traditional lenders.
Best Business Acquisition Loan Options
Product Maximum Loan Minimum Credit Score Details
SBA 7(a) Loans
$5,000,000650
OnDeck – Online Term Loans
$250,000625
Funding Circle – Online Term Loans
$500,000660
State Fund – Online Term Loans
$500,000600
Triton Capital – Equipment Financing
$250,000575
Pros and Cons of Business Acquisition Loans
Strong Points
✅ Helps cover start-up costs: Instead of relying on existing capital reserves or personal savings, a business acquisition loan can help cover some of the costs associated with acquiring another company.
✅ There may be flexible collateral requirements. For example, SBA 7(a) loans under $50,000 do not require collateral.
✅ Fast funding is also an option: online lenders can provide you with access to funds within a few days.
Cons
❌ It can be hard to qualify. Because you're looking for a loan to buy another company, lenders want to see good credit and financial standing to show you're trustworthy, experienced, and capable of paying back the debt.
❌ It may affect your cash flow. While a loan can cover the cost of your acquisition, you will have to make regular repayments, including interest. A high interest rate, especially, can affect your cash flow and monthly budget.
❌ A down payment may be required: Depending on the lender and your qualifications, a down payment of 10% to 30% of the loan amount may be required.
How to Get a Business Acquisition Loan
To get a business acquisition loan, follow these steps:
1. Determine the value of the business you want to buy
Lenders typically rely on a business valuation (an assessment of the economic value of the company you're buying) among other factors when determining how much they'll lend you, so you'll need to get a formal valuation before you start the application process.
These valuations are often conducted by an independent third party and use factors such as the business assets, future revenues and current market value to fairly assess the value of the business.
2. Obtain a letter of intent
A signed letter of intent will set forth the terms of the business sale, including the purchase price, the assets included in the sale, and the liabilities that will be assumed by the new owner. Like a business valuation, lenders will often require a letter of intent to be submitted as part of a loan application.
If you are not comfortable making an offer before getting the loan, you can include a clause in your letter stating that your offer is contingent on receiving the loan.
3. Evaluate your qualifications
In addition to the financial strength of the business you’re buying, lenders will review your application based on factors such as:
Your personal credit score. The higher your credit score, the more likely you are to get a loan with the most competitive interest rates and terms.
Annual earnings. If your existing financial situation is good, it helps show lenders that you have the ability to repay the loan.
Business history. Business history is a measure of success and security to lenders. If you have been in business for multiple years, lenders are more likely to believe that you have the experience to manage the company you are acquiring and therefore can repay the funds you borrow.
Down payment. Not all lenders require a down payment, but providing one can help you qualify for better interest rates and terms.
Collateral. You may be able to secure financing using your existing business assets, or the assets of the company you're acquiring. Physical collateral reduces the lender's risk by allowing them to seize your assets if you can't repay.
4. Compare lenders
To find the best option for your needs, you’ll need to research and compare multiple lenders. You’ll need to compare factors like business loan interest rates, fees, repayment terms, application process, and customer support.
To get a better idea of a lender's reputation, it may be helpful to read lender reviews. Look for lenders with good reviews who are fairly transparent about interest rates, fees, and terms.
5. Gather your application documents
Once you've decided on a lender, you'll need to submit certain documents based on their requirements. The speed at which you gather this information can affect the overall timing of your application process.
Franchise agreement, if applicable.
Corporate financial statements.
Keep in mind that lenders will likely require financial documents from you (bank statements, tax returns, financial statements) in addition to those of the business you’re buying.
6. Loan application and confirmation
Depending on the type of lender, you'll apply online, over the phone, or in person. If you're approved, you'll receive a business loan agreement. Read this agreement carefully to make sure you understand the repayment terms, interest rates, and fees.
After you sign the contract, the lender will disburse the funds to you. Depending on the specific process, the lender may transfer the funds directly to the seller or send it to you in a lump sum.
Alternative Business Acquisition Financing Options
If you're considering buying a business, there may be financing options outside of a traditional long-term loan. Here are some options to consider:
With seller financing, you borrow the funds you need to purchase a business directly from the current owner. You work with the owner to agree on terms and interest rates, and then repay the owner directly.
If your business acquisition includes equipment, you may be able to finance part of the purchase with an equipment loan. Or, if you're buying a business that relies heavily on equipment, such as a construction business, you may be able to find an equipment loan to cover the majority of the cost. With equipment financing, the equipment is usually collateral for the loan.
Although there are risks, buying a business self-funded using your personal savings or retirement funds allows you to profit if the business is successful. Buying a business may be less risky than starting one from scratch because you are likely purchasing assets, a customer base, etc., and you already have numbers that show the business's potential. However, there is a risk that you could lose your retirement funds or savings if the business fails.
If you are buying an existing business with a proven track record of success, it may be easier to turn to friends and family for funding. Borrowing from friends and family can save you money in interest and fees, and it may allow you to avoid an application process and get your money faster. However, it is wise to get any agreements in writing to avoid personal disputes.
FAQ
Can I get a business acquisition loan if I have bad credit?
It's hard to get a business acquisition loan if you have bad credit. You usually need good personal credit and a strong financial base to qualify for a loan. However, some online lenders may be able to get loans for borrowers with low credit scores. Also, making a large down payment or providing sufficient collateral can increase your chances of being approved.
How much can I borrow with a business acquisition loan?
The maximum borrowing amount for a business acquisition loan varies widely from lender to lender: For example, some online lenders offer up to $500,000, while SBA 7(a) loans are available for up to $5 million.
The loan amount you can borrow will depend on additional factors, such as the valuation of the company you are buying and the qualifications of your business.
Can I get a business acquisition loan with no down payment?
It is possible to get a business acquisition loan with no down payment. Some online lenders may not require a down payment, especially for self-secured loans such as equipment financing.
Many other options, like bank loans and SBA loans, may require a down payment. Providing a down payment generally allows you to get a loan with a better interest rate and repayment terms.