How To Get A Loan To Buy A Business: 6 Acquisition Loan Options

Buying an existing business can be a smart way to expand or start a company, but it often requires more capital than most owners have on hand.

A business acquisition loan can help finance the purchase of an existing business or buy out partners. In this article, we break down the main financing options, how to qualify, and what to expect during the application process.

What Is A Business Acquisition Loan?

A business acquisition loan is used to purchase an existing business, including an independently owned company or a franchise. These loans can also be used to buy out one or more business partners in an existing partnership.

Certain financing options, like SBA loans, are commonly used for business acquisitions due to their longer terms and lower rates.

Pros & Cons Of Business Acquisition Loans

A business acquisition loan can be a powerful tool, but it’s a major financial commitment. Here’s a clear look at the benefits and drawbacks.

Pros Of A Business Acquisition Loan

Cons Of A Business Acquisition Loan

Where To Get A Loan To Buy A Business: 6 Business Acquisition Loan Options

The right acquisition loan depends on factors like your experience, whether you already own a business, the size of the purchase, and the type of business you’re buying.

Below are the most common financing options used to purchase an existing business.

Startup Loans

If you’re buying a business as a first-time owner, you may qualify for a startup loan. Lenders typically expect relevant experience, a solid business plan, and a down payment to show commitment.

Startup loans are offered by banks, the SBA, and some online lenders. Buyers purchasing a franchise may have additional startup loan options available.

SBA Loans

SBA loans are among the most popular options for business acquisitions. These loans are issued by banks and partially guaranteed by the SBA, which allows for lower rates and longer repayment terms.

The tradeoff is a more involved application process and longer funding timeline. Still, SBA loans can be used by first-time buyers, especially when purchasing an approved franchise.

Bank Loans

Traditional banks do offer business acquisition loans, but qualification standards are strict. Lenders closely review your credit, experience, income, and the financials of the business you’re purchasing.

If approved, bank loans typically offer excellent rates. Keep in mind that local banks and credit unions may be more flexible than large national institutions.

Equipment Financing

If the business you’re acquiring includes valuable equipment, equipment financing can help offset part of the purchase cost. This type of financing uses the equipment itself as collateral, often eliminating the need for additional assets.

While equipment financing won’t cover an entire acquisition, it can reduce how much you need to borrow through other loan types.

Online Business Loans

Online and alternative lenders offer faster, more flexible acquisition loans than banks or the SBA. These loans are often easier to qualify for and fund more quickly, but they usually come with higher rates.

This option is most common for buyers who already own a profitable business and want to expand through acquisition.

Crowdfunding & P2P Lending

Crowdfunding and peer-to-peer (P2P) lending can help supplement acquisition funding, though they rarely cover the full purchase price.

These options work best for businesses with a strong online presence, a compelling story, or an innovative product that resonates with backers or investors.

How To Get A Business Acquisition Loan: 5 Tips For Applying

Before applying for a business acquisition loan, you’ll need key details in place, including a clear agreement with the seller. These tips can help you improve your chances of approval and secure better loan terms.

Tip 1: Vet The Business Thoroughly

Lenders want to know the business is worth what you’re paying for it. Be prepared to provide a professional valuation, financial statements, and bank records so lenders can assess risk and viability.

Tip 2: Review Your Credit

Your personal and business credit profiles play a major role in approval. Check your scores ahead of time, address errors, and pay down outstanding debt where possible so you know what loan options are realistic.

Tip 3: Gather Documentation Early

In addition to information about the business you’re buying, lenders will require your financial records, tax returns, and a letter of intent outlining the purchase terms. Having your loan application documentation ready can significantly speed up the process.

Tip 4: Highlight Your Experience

Lenders want confidence that you can successfully operate the business. A clear business plan and relevant industry experience can go a long way in strengthening your application.

Tip 5: Compare Multiple Loan Offers

If you qualify for one acquisition loan, you may qualify for others. Compare rates, repayment terms, fees, and collateral requirements before committing. Many online lenders offer prequalification with a soft credit check, making it easier to shop around.

Final Thoughts On Acquisition Loans

Buying an existing business can be a smart growth move, but financing the purchase isn’t always straightforward. Credit strength, experience, and deal structure all play a role in determining which loan options are available.

If a traditional acquisition loan isn’t the right fit, alternative financing options may still help you move forward. Comparing the best loan options and understanding the total cost of borrowing can help you choose the right path for your business.