Tresle is a tech-enabled platform and M&A services firm that simplifies the transition of ownership for small to medium-sized companies. When looking to purchase an established business, financing options are crucial to consider. Cash straight from pocket is the simplest method, although buyers often need to provide a portion of the purchase price in cash, typically between 5% to 10%. SBA 7(a) loans are another option for buyers with good credit and liquidity, with the loan program encouraging economic activity and helping buyers acquire small businesses with good terms and a low threshold for equity injection.
Conventional business loans are similar to SBA loans but lack the SBA’s backing, resulting in more risk for lenders and less standardization in terms of eligibility. However, these loans offer customization in terms of turnaround time, payment terms, and fees, based on the lender’s discretion. Seller financing is an alternative to traditional bank loans, where the original owner agrees to be paid over time, offering more flexibility and lending potential in conjunction with other forms of financing. This approach is often complemented by additional financing methods as seller notes typically cover only a portion of the total purchase price.
Investors are another financing option, offering equity financing rather than debt. Personal contacts may be a good source of investors, but investors may require an overview of the business, historical financial performance, and detailed post-closing plans. However, securing investor funding can be challenging, especially for first-time buyers. When considering financing options for purchasing a business, it is essential to research each option thoroughly and develop a comprehensive plan. A reliable financing strategy not only ensures affordability but also gives sellers confidence in the buyer’s ability to close the sale, making purchasing and owning a business a reality.
This information is not intended as investment, tax, or financial advice, and consulting with a licensed professional is recommended for advice specific to individual situations. The Forbes Business Council is a leading organization for business owners and leaders seeking growth and networking opportunities, providing valuable resources and insights for entrepreneurs. By exploring various financing options and developing a well-thought-out plan, buyers can secure the necessary funding to purchase a business and successfully transition into ownership.
