Tag: Loan

How to get funding for a business without a bank loan, Startups, business startup

How to get funding for a business without a bank loan

Business startup loan

With bank lending figures continuing to fall, thousands of entrepreneurs are looking for alternative sources of funding to get their business off the ground. If you re one such firm, this article provides a comprehensive guide to the tools and options at your disposal.

A Start Up Loan

If you are starting a new business or you have been trading for no longer than 24 months, you may be eligible for a government-backed Start Up Loan.

These are unsecured personal loans of up to £25,000 that must be used for business purposes and are repayable at a fixed 6% interest per annum.

Bank overdrafts

For companies with fluctuating income, a bank overdraft can provide quick, flexible cashflow. The idea is simple: you dip into the overdraft in the leaner months, and come back out when the business picks up.

Most major banks charge interest only on the amount you overdraw, and many offer tailored packages for young businesses.

We’d love to hear your insight:

For example, RBS/NatWest provides overdrafts up to £500, free of set-up fees, for a start-up business first 12 months (normally £50). However rates of interest on bank overdrafts are usually charged above base rates (e.g. 6.5% for RBS/NatWest), and in most cases the overdraft amount is repayable on demand.

Business cash advance

Companies such as Worldpay, Business Cash Advance and Credit for Merchants allow businesses to receive money upfront before debts and invoices have actually been paid.

Under the terms of the agreement, the financier purchases a fixed percentage of your future credit/debit card transactions at a discount, and then advances the cash into your bank account, usually within 10 working days. Repayments will be scheduled at a pre-agreed percentage of every transaction usually between 10 and 20%.

With a cash advance, you can secure up to £100,000 without the burden of collateral or fixed monthly repayments, only paying the advance back when your customers pay you. But you may have to meet a rigorous set of conditions; for example Business Cash Advance insists all clients must have been in business for at least a year, with a minimum monthly turnover of £3,500 and the ability to process credit and debit card transactions.

Find out more about business cash advances here.

Asset finance

An asset-based loan works the same way as a mortgage. You borrow money against an existing possession, and, if you can t meet your obligations, the asset is repossessed. Assets which can be used as collateral include property and premises, accounts receivable, inventory and equipment.

Although interest rates are often punitive, asset-based finance can be extremely useful for a company desperate for cash, or a business backed by valuable property which has yet to make major profits such as a hotel or plant hire specialist.

Factoring

Factoring can speed up cashflow and free up the time spent chasing bad debts, but there are drawbacks. A factor will impose a charge on each invoice, so your profit margins will be reduced, and it can be difficult to sever a contract with a factoring firm, because you have to compensate them for all outstanding invoices before you can formally part company.

One alternative, which could be more cost-effective, is MarketInvoice, an online marketplace which allows you to auction your invoice to a community of investors. You receive payment straight away and the investor will receive a profit when the payment finally comes in.

Angel investors

If you manage to impress a business angel, they may provide investment in return for an equity stake. Most angels are seasoned entrepreneurs themselves, so they know what you re going through and they re likely to be patient.

Furthermore, the process of finding and enticing an angel is far less daunting than you might think. Take a look at our investor directory to take a look at some of the most active angel funds and angel investors in the UK. If you can put together a tight pitch with realistic growth projections, and are prepared to give up a share of your business, this could be the route for you.

Crowdfunding

Crowdfunding is, essentially, an extension of the charity sponsorship page in the business world. People come together, on crowdfunding sites, to pool money towards a particular venture or idea it could be 10 people putting in £500 each, or 3,000 people each giving £1.

Donors or investors on crowdfunding sites, such as Kickstarter or Crowdcube are typically private individuals providing small sums, so they re unlikely to give you the sort of grilling, and rigorous conditions, an angel investor would. You can also scope out the popularity of your idea via a crowdfunding site, and get some crucial word-of-mouth marketing going.

If you re interested in raising finance using crowdfunding take a look at our crowdfunding form. We ve partnered with a few crowdfunding platforms to help businesses raise seed or growth capital and may be able to point you in the right direction.

Peer-to-peer loans

A peer-to-peer exchange site, such as Zopa or Funding Circle, will put you in touch with private lenders, and create a personal relationship between you and the lender fostering trust and patience.

A number of companies are now well-established in this space, and several offer generous terms. Indeed Zopa waives all fees for loan applications, reduces interest rates for borrowers who make early repayments, and adds only a one-off fee of £130 to the cost of the loan.

Micro-loans

If you only need a very small amount of money, you should think about a micro loan, which is tailored to your circumstances and can be used alongside funding from other sources.

A number of companies in the UK offer micro loans; for example Finance Wales offers funding from £5,000 to £25,000, with generous repayment terms ranging from one to five years.

Community schemes

A plethora of community development finance initiatives, or CDFIs, have been set up around the country to help individuals, and businesses, denied credit by banks and lending companies.

CDFIs provide help with everything from bridging loans and working capital to funds for property and equipment purchase, but their terms are usually restrictive; you usually have to be either a micro-business or a social enterprise, and be based in a disadvantaged area to qualify.

Family loans

If you want to keep things ultra-simple, a supportive family, with money to spare, can provide a fair, willing and reliable source of loan funding. Relatives and loved ones are more likely to trust you with their money than an outsider, and they will probably demand lower interest and fewer incentives than a commercial organisation.

There are of course some drawbacks when it comes to mixing family and finance, so it s worth weighing up both the pros and cons of family funding.

Any finance model or provider should be researched thoroughly before you make any commitments, to ensure this is the best solution for your business. You will find more information on some of these finance options in our Raising Finance section.

We would also recommend researching specific providers or funding platforms online and speaking to other businesses which have used them.


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Small-Business Loans – 3 ways to get a loan, start up business loan.#Start #up

3 ways to get a small-business loan

The recovering economic environment has meant that small businesses have had to be more creative when looking for loans.

However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

“For creditworthy, high-scoring small businesses, there is money available,” says George Cloutier, CEO of American Management Services, a consultant to small businesses.

Bank loans

The best place to get a small-business loan is still a bank, says Cloutier. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

“Many small businesses try three or four banks and then stop looking,” Cloutier says. A more persistent approach has better odds of success.

Calculate business loan payment

Want to calculate your small-business loan payment? Go to Bankrate’s loan and amortization calculator.

“Take out the phone book, target 10 banks and work through that list,” he says.

That strategy worked for Michael McKean. He is founder of The Knowland Group, a company that helps hotels fill up their meeting space.

A few years ago, as the success of The Knowland Group grew, McKean began searching for a bank that would give the growing company expanded access to credit.

“We talked to every bank in our area, at least a dozen,” McKean says. “Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms.”

Finally, M T Bank came through.

“They just wanted to get our business,” McKean says.

McKean says his company did not approach M T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

“We did everything right, approaching the right person at each bank,” he says. “We’re a profitable business. I think it was just the … credit crunch that prevented us from getting a loan.”

Cloutier says the key to success with banks is to show past profitability, and to describe a well thought-out plan for future profits.

“If you aren’t making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won’t be able to get a loan,” he says.

He also recommends that businesses start small in their loan requests.

“If you need money for four trucks, ask for two,” Cloutier says. “The bigger the loan request, the harder it is to get it approved.”

SBA loans

Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you’ll have the advantage of approaching banks specifically interested in lending to small businesses.

Interested businesses should contact the SBA office nearest to them, which can be found on the agency’s website. Jeanne Hulit, the SBA’s acting administrator, urges businesses to seek a bank that is an experienced SBA lender.

Banks granting SBA loans place increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she says. The SBA also can refer businesses to free counseling centers to improve their performance.

Online opportunities

Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders, such as individuals and small companies.

Interest rates are generally a little higher than what a bank will charge, but it’s much less than what you’ll have to pay on many credit cards.

Look around at different sites, some may charge a one-time fee to list your business, while others are free to list but might have fees reflected in loan rates.

If you’re going to list your company on one of these sites, describe your business in clear and concise language.

Lastly, make sure to investigate the company you are looking to post your business on. These kinds of companies were successful in 2008 and during the recession, but times have changed. Many have since gone out of business. Before paying for anything, make sure the company is legit.


Tags : , , ,

Small-Business Loans – 3 ways to get a loan, start up business loan.#Start #up

3 ways to get a small-business loan

The recovering economic environment has meant that small businesses have had to be more creative when looking for loans.

However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

“For creditworthy, high-scoring small businesses, there is money available,” says George Cloutier, CEO of American Management Services, a consultant to small businesses.

Bank loans

The best place to get a small-business loan is still a bank, says Cloutier. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

“Many small businesses try three or four banks and then stop looking,” Cloutier says. A more persistent approach has better odds of success.

Calculate business loan payment

Want to calculate your small-business loan payment? Go to Bankrate’s loan and amortization calculator.

“Take out the phone book, target 10 banks and work through that list,” he says.

That strategy worked for Michael McKean. He is founder of The Knowland Group, a company that helps hotels fill up their meeting space.

A few years ago, as the success of The Knowland Group grew, McKean began searching for a bank that would give the growing company expanded access to credit.

“We talked to every bank in our area, at least a dozen,” McKean says. “Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms.”

Finally, M T Bank came through.

“They just wanted to get our business,” McKean says.

McKean says his company did not approach M T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

“We did everything right, approaching the right person at each bank,” he says. “We’re a profitable business. I think it was just the … credit crunch that prevented us from getting a loan.”

Cloutier says the key to success with banks is to show past profitability, and to describe a well thought-out plan for future profits.

“If you aren’t making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won’t be able to get a loan,” he says.

He also recommends that businesses start small in their loan requests.

“If you need money for four trucks, ask for two,” Cloutier says. “The bigger the loan request, the harder it is to get it approved.”

SBA loans

Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you’ll have the advantage of approaching banks specifically interested in lending to small businesses.

Interested businesses should contact the SBA office nearest to them, which can be found on the agency’s website. Jeanne Hulit, the SBA’s acting administrator, urges businesses to seek a bank that is an experienced SBA lender.

Banks granting SBA loans place increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she says. The SBA also can refer businesses to free counseling centers to improve their performance.

Online opportunities

Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders, such as individuals and small companies.

Interest rates are generally a little higher than what a bank will charge, but it’s much less than what you’ll have to pay on many credit cards.

Look around at different sites, some may charge a one-time fee to list your business, while others are free to list but might have fees reflected in loan rates.

If you’re going to list your company on one of these sites, describe your business in clear and concise language.

Lastly, make sure to investigate the company you are looking to post your business on. These kinds of companies were successful in 2008 and during the recession, but times have changed. Many have since gone out of business. Before paying for anything, make sure the company is legit.


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How to Start a New Business Loan With Bad Credit, new business loan.#New #business

How to Start a New Business Loan With Bad Credit

New business loan

With bad credit, you may need to go outside traditional lending companies for a loan for your business.

bank image by Pefkos from Fotolia.com

Related Articles

  • 1 [Business Loan] | How to Get a Business Loan With No Credit
  • 2 [Small Business Loan] | How to Get a Small Business Loan With Bad Credit No Collateral
  • 3 [Woman Get Start] | How Can a Woman Get Start Up Funds for a Business When She Has Bad Credit?
  • 4 [Farm Loan] | How to Get a Farm Loan to Produce Chickens

When you want to start a new business and you have bad credit, you have fewer options for borrowing startup capital.

When you need to borrow money to start a new business and your credit’s bad, you have two strikes against you: bad credit and a new business without a track record. Traditional lenders don’t like lending to startups, but with the rise of internet lending and other possibilities the internet provides, you can probably get a loan anyway, although not necessarily at the interest rate you’d prefer.

First Steps to Take

Before you apply for a loan, there are some preliminary steps you need to take:

  • Pencil out your financial needs. This first step doesn’t have to be detailed or complex, but it’s a map you’re going to need. Include not only how much money you need initially but also how much you’ll need later – almost every business has a negative cash flow after starting up.

These first steps can be daunting, but they are critical to success in obtaining a loan.

Traditional Lenders

Bankers don’t like bad credit and they seem to hate new businesses. Nevertheless, some community bankers may be willing to listen. If nothing else, you’re practicing your pitch.

Credit unions are another traditional lending source. If you don’t belong to a credit union, perhaps your spouse, a close friend or family member does and would be willing to sign or co-sign for the loan. Which brings you to another important lending source: friends and family.

Friends and Family

If you have bad credit because you spend more than you earn or are generally careless about paying bills and making credit card payments, you can’t expect friends or family members to go out on a limb for you. However, if special circumstances generated a low credit score – a difficult divorce, for example – and you have a reputation for following through when you make important life decisions, your friends and family may be willing to lend you the money or at least some of the money you need. One way of accomplishing this is to ask them to co-sign on your loan. The co-signer is ultimately responsible, but you’ll make all loan payments directly to the lender, and all the payment reminders come to you first.

Internet Lenders

The internet opened up a lot of business opportunities with one of them being internet lending. Internet lenders tend to accept more risk than banks and put you through fewer hoops when you apply for a loan. Two of the largest are Prosper and Lending Club. The book “Peer Finance 101” lists 20 more. With bad credit, you can probably get a loan, but it will come with a higher-than-average interest rate.

Crowd Funding

Crowd funding is an amazing internet success story. If you have a killer idea and no money to execute it, crowd funding may be your answer. In essence, you use the internet to pitch hundreds and sometimes thousands of people to motivate them to lend or donate the money you need to execute your idea. The largest crowd funding organization is IndieGoGo, which has raised more than $1 billion for budding entrepreneurs. The IndieGoGo website has a short pamphlet that explains how crowd funding works.

Besides IndieGoGo, there are many more crowd funding organizations, some of which specialize in lending in specific areas: real estate, socially responsibility, women and minorities, artists and others. To see the opportunities available, do an internet search for “crowd funding organizations” or “crowd funding [your special interest].”


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Business Loan: Small business finance, Westpac, business loan calculator.#Business #loan #calculator


Business Loan

We ll be in touch in 1 working day.

Essentials

Looking to grow your business? Take the next step in your business plan.

Choose a fixed or variable rate Business Loan.

Variable rate

  • Make extra payments, which could reduce interest paid over the life of the loan
  • Option to swap between interest only or principal and interest repayments
  • Redraw allows you to make extra payments and access these funds later.

Fixed rate

  • Provides certainty in knowing what you’re up for with each repayment
  • Protects you from potential future interest rate movements.

Make tax time less taxing

Keep track of your Business Loan balance and financials online (and at tax time, export details of interest paid to your accounting software).

Terms and loan security

The term of your Business Loan will vary depending on security offered (you may swap if your situation changes):

  • Loan term up to 30 years when residential property used as security
  • Loan term up to 25 years when commercial or rural property used as security.
  • Loan term up to 5 years when unsecured (guarantee may be required)
  • Establishment fee
  • Monthly loan maintenance fee
  • Other fees apply.

Rates

About applying

Important Considerations

Here are some important points to consider before applying for a business loan:

  • Security – depending on your circumstances, business loans can be unsecured or require security in the form of residential, commercial or rural property. A guarantee will also be required by company directors for corporate borrowers
  • Credit history – all borrowers, owners, directors and guarantors must have clear credit records. All statutory payments and ATO liabilities need to be up to date and not under arrangement
  • Banking and borrowing history – existing bank accounts and lending products must be within their approved limits
  • Domicile – your business must be registered in Australia

Looking to borrow less than $50,000?

Consider our range of business credit cards. Terms and Conditions apply.


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Unsecured Business loans, unsecured business loan.#Unsecured #business #loan


Unsecured Business loans

There are 2 types of Business loans:

  1. Secured Business Loans: A 3 year term loan for proprietorship, partnership, private limited companies and limited companies based on a sound balance sheet.
  2. Unsecured Business Loans: Working capital funding in rupees as well as foreign currency for proprietorship, partnership, private limited companies and limited companies.

Unsecured Business loans

Unsecured Business Loans are loans taken by the borrower to start or enhance a business without any collateral. The borrower need not pledge any of his property or asset. There are many banks like HDFC, SBI, Shriram City finance etc. that provide you unsecured business loan in India and of course many financial services too like karvy financial services, cholamandalam financial services, indiabulls financial services etc.

Andromeda Loans India’s largest loan distributor brings the best deals for you.

Question 1: Starting a business OR need to enhance your business?

Question 2: Looking for a loan?

If the answers to both the above questions are ‘Yes’, then look for Andromeda Loans. We can help you avail unsecured business loans with no collateral, minimal paper work and quick approvals, 3 year term loan for proprietorship, partnership, private limited companies and limited companies based on a sound balance sheet. The eligibility criteria for unsecured business loan differ from bank to bank. However most often they consider the below factors:

  1. Age Most banks disburse business loans to individuals aged between 24 to 65 years.
  2. Current Business Experience Banks will prefer that your business has been showing stable signs of growth at least for the last 3 years. Some banks give a loan amount up to 60 to 80% of your median annual profits.
  3. Total Business Experience A bank will prefer if you have been engaged in sustainable business for at least 5 years to consider giving you a loan.

Working Capital for Business: Financial Services offers unsecured loans for your business needs. If you fall under the eligibility criteria and submit the relevant documentation you can get going with business loan without risking your assets and running business in constant fear of repayment of loan.

  • Always have an appropriate estimate of the working capital.
  • Compare business loan from various banks. The eligibility criterion varies from bank to bank and so also the procedures and formalities.
  • Please remember that the interest rates on unsecured business loans are always higher when compared to the secured business loans.
  • Get a quote on the loan by filling in and submitting the details from free quote.
  • You will need good credit reports / CIBIL score while applying for a loan. This is by far the main criteria to be eligible for a business loan.

Top 3 private banks that have healthy loan growth as per an article from www.business-standard.com are ICICI, Axis and HDFC Banks.

ICICI Bank offers short-term unsecured finance

  • Available at reasonable cost to selected dealers of large corporates, extended for procurement of goods from corporates.
  • Commonly available on a non-recourse basis, with corporate recourse available by way of First Loss Deficiency Guarantee in some cases.
  • Service Charges 0% 2% plus applicable service taxes

HDFC unsecured business loan

  • Loan limits of up to Rs.10 lakh
  • Doorstep service
  • With competitive interest rates
  • Special offer for self-employed Doctors
  • Attractive interest rates
  • Competitive interest rates
  • A vast segment of products suiting every requirement and budget
  • Convenient, quick disposal of loans for your enterprise requirements.

Compare the best deals from Banks offering Unsecured Business Loans or simply get a free quote by providing us the required details.

Frequently asked questions on Unsecured Business loan approvals.

  1. What Is Your Approval Rate?

The approval rate is high if you fall under the eligibility criteria.

  1. Is There a Fee To Have business loan Released?
  1. How Long Does It Take to Get Approved?

Approvals can happen in a matter of days.

  1. How Long Does It Take To Get The Funds?

Processing of the loans usually take 4 working days after all the documents are submitted.

Yes. You can pre-pay the loan after repaying a min. of 6 EMI’s. Foreclosure charges would be applicable as per the banks term and condition.


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How to Get a Business Acquisition Loan, business acquisition loan.#Business #acquisition #loan


How to Get a Business Acquisition Loan

In this article, we discuss the process of getting a loan to acquire a business. This article covers the basics of a business acquisition loan – what you need to have in place before you apply for a loan and how to get the process started.

This article helps you if:

  • You are looking for a loan to buy a business
  • The business you want to buy is in operation and profitable
  • The business is valued at $1,000,000 at a minimum

For more information about other methods of financing a business purchase, read our article about financing business acquisitions.

Business acquisition loans are SBA-backed

Most commercial banks are reluctant to offer loans to people who want to buy a business unless the loan is guaranteed by the Small Business Administration (SBA). Because the SBA provides very solid guarantees, banks can reduce their risk and receive an incentive to make otherwise risky loans.

However, the SBA guarantee is considered a last resort as far as collections are concerned. Banks have to ensure that the loan can be paid by the business or the borrower. Banks are the first line of collections. The bank can collect on the SBA guarantee only if it s not able to recover funds from the business or the owners personal assets.

As a result, you need to be ready for the bank s underwriting process. This preparation gives you the highest chance of getting the funding you need.

Lastly, don t worry if your situation isn t perfect . The SBA is in the business of helping entrepreneurs who couldn t get a loan otherwise.

Before you start looking for businesses

If you are serious about purchasing a business, you need to do a few things before you start the process. Obviously, you are reading this article because you plan to use financing. To improve your chances of getting that financing, consider the following:

1. Check your personal credit and the credit of all your potential partners.

Ideally, your credit scores should be at least 650. Obviously, higher credit scores are better. Lending institutions, including SBA-backed providers, use your credit as a proxy for financial responsibility. We know it is not always accurate (nor is it necessarily fair), but this is how they do it.

2. Determine your net worthpersonal assets and personal liabilities

Lending institutions need to know the net worth of you and your partners. You need to show the lender your personal assets such stocks, savings, home equity, retirement savings, and such. Additionally, you need to show the lender your liabilities, such as your mortgage, car loans, and personal loans.

3. Gather the last three years of tax returns

The bank will also ask you and your partners (those with 20% or more ownership share) to provide your complete tax returns for the last three years. Since you don t want your loan to be delayed, get your tax returns ahead of time. If you don t have them, speak with a tax professional.

4. Start raising funds for the down payment

In most traditional SBA-guaranteed loans, the borrower is expected to provide 20% of the acquisition cost as a down payment. This number can be reduced to 10% if you are also using seller financing and if the seller is willing to provide a two-year standstill.

This discussion often brings up the issue of so-called no-money-down loans. For all intents and purposes, these loans don t exist. There are some very specific situations that can require minimal money down, such as some very asset-rich leveraged buyouts. However, most transactions require a 10% to 20% down payment. It s best that you be prepared to pay this.

Starting the process

The most important thing you need before you can start seriously looking for financing is a signed Letter of Intent (LOI) from the seller. While you should certainly speak to some lenders before you get the letter, no one will give you a proposal unless you have the signed LOI.

Step 1: Select the provider you will work with

Your first step is to select the lending provider to work with. A number of providers offer SBA-guaranteed loans. While their requirements are similar, they also have differences. Select the loan that works for you and that you are comfortable with.

Step 2: Provide a full application

The next step is to provide a full application. This step can be relatively easy, or extremely hard, depending on how prepared you are. Ideally, you should have your personal financial reports, the financial reports of the business, your taxes, and other necessary reports ahead of time. Getting this information ahead of time saves you a lot of headaches and helps ensure you meet the deadlines defined in your letter of intent. You can find more detailed information on business acquisition loan requirements.

Step 3: Go through the underwriting process

The next step is for the lending institution to start its underwriting process. The length and depth of this process depend on the type of business that you are acquiring. The lender evaluates the assets and liabilities of you and any partners you may have. The lender considers your business experience and examines the financial records of the business. Finally, the lender orders an appraisal of all relevant assets and performs a thorough vetting of all important issues. If all goes well, your loan is approved and you are ready to move to the last step.

The last step is funding the loan. In this step, the lender s appointed escrow agent distributes funds, assets, and stock according to the agreements you have with the seller (an Asset Purchase Agreement or a Stock Purchase Agreement). After this step is completed, you formally own the business.

Are you looking for a loan to acquire a business?

Are you looking to finance the acquisition of a business? We may be able to help you. Do not call the number above. Instead, fill out this form and a representative will contact you shortly.

Editor’s note:

Given the complexity of how businesses can be purchased and the products that are used, this document is not guaranteed to be 100% accurate or cover every potential option. However, we make every effort to provide the best information. If you have comments, suggestions, or improvements, contact us via LinkedIn.


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Requirements for a Business Acquisition Loan, business acquisition loan.#Business #acquisition #loan


Requirements for a Business Acquisition Loan

This article discusses the main requirements you must meet to qualify for an SBA 7(a) loan. This type of loan is one of the most common financing tools used by small business owners to finance a business acquisition.

A Quick Word on SBA Loans

The term SBA Loan is a bit of a misnomer because the SBA does not lend money directly. Rather, it provides certain guarantees to financial institutions, who, in turn, make loans. The bank itself makes the loan and takes some of the risk. This detail is important because each bank s requirements are likely to differ.

Business Acquisition Loan Requirements

Banks participating in the SBA loan program usually consider the following criteria when evaluating a potential borrower:

1. Reasonable personal credit

To get a business loan, the borrower (or some of the borrowers, if a group is seeking a loan) must have decent personal credit. Most institutions will work with credit scores from 650 to 690.

2. Signed letter of intent

You give the seller of the business a signed letter of intent that states the proposed terms for the acquisition. You must provide a signed letter of intent to get a term sheet. There are no exceptions to this requirement.

This requirement is often viewed as a potential catch-22. Buyers don t want to make an offer to the seller until they have qualified for funding. And lending institutions are not willing to provide terms until they see the letter of intent. However, the solution is simple. A well-crafted letter of intent should contain a clause stating that the offer is contingent on getting financing. This clause is common in business acquisitions and gives the buyer a reasonable time-frame to find financing.

3. Borrower information form (Form 1919)

This form is used to collect information about the principal(s), key individuals in the business, and guarantors, along with information about any current or past government financing. You can find the form here.

4. Personal financial statement (Form 413)

The personal financial statement contains all relevant financial information about you, your business partners, each owner with more than 20% equity, and each guarantor. This detailed form is used to determine your repayment ability and creditworthiness. This form can be intimidating don t let it be. Remember that the SBA provides the bank with a guarantee on your behalf specifically to help borrowers that wouldn t otherwise qualify for a loan. You can find the form here.

5. Three years of personal/corporate tax returns

As part of the application package, you need to provide three years of personal tax returns. Additionally, you must provide three years of corporate tax returns on the business that you are looking to acquire.

6. Three years of business financial statements

As part of the application package, you must provide three years of financial statements for the business you plan to acquire. Most banks ask for Profit and Loss Statements, Balance Sheets, and Cash Flow Statements.

7. Debt schedule

As part of the application package, you have to provide a debt schedule that lists all the debts/liabilities of the business.

8. Management experience

To qualify for a loan, some (or all) of the applicants must have substantial business experience. It is better if your experience is in the same industry of the business that you are trying to purchase, but that is not always a requirement. Ultimately, you have to prove to the participating lender that you are able to manage the business that you plan to buy and that you are a safe risk.

9. Debt service coverage ratio

The debt service coverage ratio is the ratio of cash that is available to service debt, interest, and lease payments. It s calculated by dividing the Net Operating Income by the Debt Service. The higher the ratio, the easier it is to obtain a loan. At a minimum, the business you are going to buy should have a debt service coverage ratio of 1.15.

10. Down payment

As a rule, SBA bank participants prefer that the owners make a down payment of 20% of the total value of the business. Yes, this number is high, but it shows the lender that you are committed to the business. You can reduce your down-payment requirement by convincing the seller to extend some financing to you. Note that for this strategy to work, the seller must also be willing to take a two-year standby/standstill. Even if you get seller financing, you must be able to provide a minimum down payment of 10%.

Are you looking to finance a business acquisition?

Are you looking to finance the acquisition of a business? We may be able to help you. Please do not call the number above. Instead, fill out this form and a representative will contact you shortly.


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The Average Interest Rate for Small Business Loans

Business loan rates

Banks sell commercial loans to investment companies.

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  • 3 How to Get a Government Small Business Loan
  • 4 The Best Banks for Small Business Loans

To obtain capital to start a new business, business owners take out business loans from banks or other lending institutions. It is difficult for small business owners to obtain capital any other way. Small businesses use these loans to purchase inventory, rent building space and pay vendors. Because small businesses have such a crucial need for these loans, lending institutions can charge high interest rates on them.

Size of Loan

The average interest rate for a small business loan depends upon a number of factors. One factor is the size of the loan. For example, loans under $100,000 have a higher interest rate than loans over $100,000, according to a July rate report by Bloomberg Businessweek. This is because smaller loans will be repaid at a faster rate than larger loans. In 2011, loans under $100,000 have an interest rate of 7 to 8 percent, whereas loans over $100,000 have an interest rate of 6 to 7 percent.

Type of Institution

Another factor to determine the size of the interest rate is the type of institution offering the loan. For example, the Businessweek report indicates foreign banks tend to offer lower interest rates to small businesses than smaller domestic banks do. In 2011, foreign banks offered an interest rate of 6 to 7 percent, whereas small domestic banks offered an interest rate of 7 to 8 percent. Foreign banks can offer a lower interest rate because fewer monetary and security regulations are in place by those countries.

Type of Business

Another factor lending institutions consider in determining small business loan rates is the type of business being funded. A riskier business, such as an Internet start-up company, will be offered a higher interest rate than a safer business venture, such as an extension of an established food chain. If the small business can show the lending institution that it is a safe investment, the financial institution may consider the investment as a lower risk and, therefore, offer a lower interest rate on the loan.


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