Business Acquisition Loans

Business acquisition loans are funds borrowed by a business with the intent to purchase or merge with another business. For businesses intending to increase their profits and dominate the market place, this is the best option. It reduces the stress of having to save up so much to merge with or acquire an additional business.

Getting these loans is, however, very tricky. The lenders consider quite a number of elements of both the acquiring business and the acquired business. Since this kind of agreement involves lots of cash, it is logical that a lender ought to be cautious before dishing out the funds because it could turn out to be very risky for them.

Requirements for application
There are many factors that a lender considers before disbursing the loans to the applicant. The borrower’s credit rating is one factor that is considered. To be approved for the loan, the applicant’s credit history must be stainless. Any outstanding debts should be cleared on time if a business wishes to heighten its chances of getting approved for the loan. Review and rectify your credit history where necessary.

Secondly, the lender will analyze the cash flow from both the acquiring business and the acquired business. The lender must know the capability of the former and also the latter’s potential profit beforehand. Though, in some cases, lenders do not base their decision entirely on the future profitability of the acquired business, as much as the current capabilities of the borrower.

The borrower’s management competence to run the acquisition is another vital factor. You cannot plan to acquire a business that you have no idea how to manage. Therefore, you ought to present documents detailing your experience and capabilities, in addition to your business strategy. If you are fully capable of operating the business you intend to acquire, there are higher chances that you will qualify for the loan.

If a borrower has the expertise to manage the business he intends to acquire and the business has a great potential, the lender will quickly approve the application. Usually the lender will pay 100% of the cost of the acquisition of or merging with the other business.

Challenges in application
The process of applying for these loans is not entirely smooth as such. Since there will be a transfer of ownership, there is the business transition risk involved. Retaining the same customers will be challenging with a new management team. This is because the previous owner of the business may have had a specific set of skills that the incoming owner does not have. Despite that, the lender must always feel confident that the business will continue even with the new staff. Convincing a lender of this is not always easy because, as a business, you may not be certain of what the future holds. However, if you have the right skills and strategy, the lender can feel at ease giving you the full loan amount.

Another challenge is the market risk. The lender must always be convinced that the business will be profitable, at least for the period in which the loan will be outstanding. Whether the acquired business is in a growing, mature or declining state will have a major effect on this. You must therefore ensure that you choose a mature or growing business and employ workable strategies to ensure it is continuously profitable.

Having considered these challenges and determined their possible solutions, you can safely apply for the loan.

How to apply
Just like any other loans, business acquisition loans are obtainable from a number of sources. There are organizations that specialize in this kind of loan and there are also the financial institutions, such as banks. The task is to shop around and get the best deal available before plunging into any agreement. You can search for lenders online or ask your friends and fellow business people for advice on the best sources. Better still, you could keep tabs with the frequent offers from reputable banks. Applications can be undertaken and processed online as well.

Provided you meet the requirements, and also have the best strategies that will help you solve the challenges that may arise from taking such loans, you will be approved. These loans are long term therefore you will have ample time to repay, but first, choose your lender wisely.