How To Get a Loan To Buy a Small Business
Buying an existing business requires proper funding to cover the acquisition cost and help you maintain cash flow. You can get the necessary funds by taking out a loan, but this can be challenging. That is why, in this article, we will help by explaining:
- How small business loans work and how to qualify for them
- What types of loans are available for purchasing a small business
We will also help you find top lenders and maximize your chances of getting a loan to buy a small business by creating a compelling loan request letter in your stead.
The following are some of the best business loans you should consider:
- The United States Small Business Administration (SBA) loans
- Conventional business loans
- Seller financing
- Merchant cash advance
SBA offers various loan programs to help small business and startup owners cover their business-related costs. The most well-known SBA program is the 7(a) loan because of its generous loan amount ($5,000–$5,000,000) and favorable terms (five to 25 years). The interest rates range from approximately 7% to 10%.
To qualify for this loan, your company must satisfy the following criteria:
- Operates as a for-profit business
- Has explored other financing options, including personal savings
- Has a credit score of above 680
- Can provide a down payment of 10%–20%
- Has sufficient assets for collateral
Conventional business loans are issued by banks and other lenders. They typically have fixed interest rates (7%–30%) and must be repaid in a predetermined term, usually within one to five years.
The amount of loan is negotiable with the lender, but you can expect anywhere between $25,000 and $500,000.
If you are interested, make sure your business fulfills the following requirements:
- Satisfies the minimum annual income level
- Has an excellent credit score
- Can provide collateral
Seller financing is a type of real estate loan where a seller of a property helps a buyer to buy said property in exchange for a monthly repayment with interest.
Seller financing tends to be much more flexible compared to other loans. The terms and requirements are determined by the agreement between the borrower and the seller. Businesses with poor credit scores might be able to secure a loan through this method.
While not considered a loan in a traditional sense, a merchant cash advance can provide the capital you need to buy a new business. It allows you to receive funding from a merchant cash provider in advance, and you will have to offer a percentage of future daily sales as repayment.
A merchant cash advance is an excellent financing option for businesses with high volumes of sales that may not qualify for conventional bank loans. The application process typically takes less than a day, making it a convenient funding method for businesses that need immediate financing.
This is how to get a loan to buy a small business:
- Select the loan
- Check whether you qualify
- Collect the required paperwork
While all lenders have different requirements, most of them will ask you to provide the following documents:
|Personal Finance||Acquisition Plan||Business Finance|
Whether you need funds to cover business expenses or acquire a new company, sending a professional loan request letter can help you secure financing. The good news is, you do not need a lawyer to ensure the letter is perfect.
DoNotPay can create an impeccable loan request letter on your behalf in a matter of minutes. You can use our app by following these steps:
- Search for the Business Loan Request Letter product
- Have your credit score report and financial statement ready
- Tell us how much you would like to borrow
- Upload the documents
Our app will personalize the loan request letter to your needs and send it to banks or other lending institutions on your behalf.
With so many options in the market, finding a reputable lender for small business loans can be difficult. DoNotPay can help you take care of the task in just a few minutes. Here is how to do it:
- Locate the Find Online Business Loan Lender feature
- Answer some questions regarding your loan requirements and business priorities
- Describe your business type and industry
The database will compare various loan options based on possible loan amounts, rates, terms, and speed.
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