When buying a business, you’re planning a journey that, upon lift off, will soar for many years. To prepare for this lift off you need an ample runway. Careful business planning that considers realistic operating costs and working capital are a must. Before getting started, it’s wise to understand all the options for financing available.
Since institutions will typically only provide 80% to 90% of a purchase, most business purchasers use a combination of alternate sources to raise the required capital. Here are numerous effective methods of raising capital, including several unique financing options you may consider.
These options can be blended to achieve the maximum capital at the lowest cost. While every business plan is different, options are listed in an approximate order of most common to least common.
Important Note: If you are currently working as you plan your new business, you may want to start a business loan process BEFORE you quit your job, as many loan underwriters check with your employer to check current employment. Additionally, thinking ahead about your various options for financing at this stage can put you in a better position.
- Personal Checking, Savings and Securities Withdraws.
- Seller Financing: Most buyers and sellers consider due to advantages for both parties.
- SBA Loan: The Small Business Administration assists in loans from $100K – $5M.
- Loans from family members or friends.
- Asset Sale: Sell something: real estate, a car, a boat, an antique, a collection, etc.
- Loans against a Checking or Savings Account.
- Loans against Securities or Retirement Accounts (IRA, 401K, etc.).
- Loans against Life Insurance Policies.
- Credit Card Cash Advances.
- Personal Lines of Credit.
- Home Equity Loans/Lines of Credit “HELOC”.
- Refinance Real Estate: “Cash Out Refinance”.
- Finance an Asset: Boats, cars, collections, antiques, etc.
- Roll Over Business Startup options: “ROBS”.
- Leasing equipment, furniture, and vehicles instead of purchasing them.
- Commercial Loan: Available at a bank or finance company.
- Economic Development Programs: Check with state and local governments.
- Angels: Wealthy individuals enjoy investing in small businesses; with the return of course.
- Venture Capital: Trading a percentage of ownership for capital from a group of investors.
Are you ready to learn more?
Valued Representation by your VR Intermediary will include exploring these and other types of favorable options for financing, ensuring you’re aware of the most advantageous ways to secure a loan or other financing options as a qualified buyer.