What You Need To Know About Buying a Business

When buying a business, it is common to use multiple forms of funding sources. It is important to choose your funding source wisely. The type of funding you choose can impact final negotiations and other aspects of the sale. The following are 4 common traditional financing methods:

Cash and Savings

Using cash and your personal savings is the best way to fund the purchase of a small business. This is often a fast process, as there are not hung ups as there are with a bank loan or third-party lending. A cash purchase also puts you in charge of the sale and makes it possible to make negotiations to favor you throughout the purchase, getting you the best deal possible on your new business.

Seller Financing

Many people are using seller financing as a way to purchase a small business. In a seller-financed acquisition, you may be expected to provide a down payment of 20 percent or more. You will nave less leverage when it comes to negotiations for the purchase price of the business.

Commercial and SBA Loans

Banks and other commercial lenders often shy away from small business acquisitions, typically requiring loan guarantees from the Small Business Administration (SBA). You can turn to the SBA for financing under an SBA 7(a) guarantee, however there are often lengthy requirements to secure financing that will tie up the purchase the business.

Borrowing From Family and Friends

If a bank or seller financing is not an option for you, you can turn to financing the acquisition with the help of friends and family members. This is a very common financing option for first-time business buyers, making it possible for you and many others to achieve their dream of becoming an entrepreneur.

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