LOOKING FOR BUSINESS PURCHASE FINANCING?
ACQUISITION FINANCING
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Unleashing The Secrets Of Successful Business Purchase Financing
THE ART OF SECURING FINANCING OPTIONS FOR BUYING AN EXISTING BUSINESS IN CANADA
When business owners and entrepreneurs make the decision to buy an existing business they need some solid info about how to finance the business purchase transfer for the transaction
Funding the business venture purchase is a critical part of buying a business - Acquisition finance comes in the form of owner business equity financing, as well as loans from traditional or alternative lenders - in some cases complemented by seller financing from the business purchase transfer financing final solution.
KEY FACTORS IN BUSINESS ACQUISITION FINANCING include loan terms and conditions and covenants and personal guarantees, as well as repayment option flexibility - as well as the ever-present focus on the interest rate and financing costs and external collateral.
Ensuring effective financing for business ownership for existing businesses allows a smooth business transition with funding that allows for repayment and financing costs based on general market conditions as well as loan terms and conditions that meet the buyer's needs.
Key Factors in Business Acquisition Financing
Loan Terms and Conditions
Repayment Options
Interest Rates
Collateral Requirements
So what are in fact the best ways to execute your strategy on business purchase financing? Let's dig in on expert tips for navigating business purchase financing successfully and choosing the right lender and funding source.
In many situations, clients tell us they often have the 'inside track' on a business or company that would accept a good offer based on the current situation of the seller. There are of course various reasons for sellers wishing to divest their business - these days succession and management buyouts are popular reasons.
3 GREAT REASONS TO PURCHASE AN EXISTING BUSINESS
Obviously, there exist key reasons why buying an established company is a solid way to execute your business plans and business acquisition loans. Key factors to consider buying a business often seem obvious -
Existing revenue and profits
Experienced management and personnel already in place
Elimination of start-up risk
Etc. !
Buying a business is an effective strategy to attract new and additional clients, as well as the ability to expand capacity, operations and headcount - Typically the company is already established and has a reputation in the market, as well as access to suppliers and distribution logistics.
SELLER FINANCING - A DIFFERENT TYPE OF FINANCING FOR BUYING A BUSINESS!
In many cases, some seller financing from the current business owner may in fact prove to be critical in financing your deal. Previous owners remain in a subordinate position via what's known as a vendor takeback, and often the skills and expertise of the seller are valuable in the early stages of the takeover. A seller note for Business purchase financing for small business is often a great way to help close the transaction and has the potential to lower the down payment of the buyer.
IS BUYING A BUSINESS EASIER THAN STARTING A BUSINESS?
A debate sometimes exists, but most experts believe it is easier to arrange funding for an established business. When cash flow and sales are positive they play a key role in establishing the ability to repay business acquisition loans of various types. In many cases franchises are part of today's acquiring of businesses - they have brand and reputation already in place. Qualifying for business purchase finance solutions is often recognized as easier than funding a startup. Understanding the process of business purchase finance is key.
THE VALUATION OF A BUSINESS - THE KEY TO UNDERTANDING FINANCING OPTIONS TO BUY A BUSINESS
The concept of business valuation is key in purchasing a company. Higher valuations might in fact mean you have to finance goodwill when most lenders prefer asset financing solutions
We should point out that many businesses that are purchased are in some form of ' distress'. Here valuations are often attractive but the buyer must demonstrate confidence around ' the turnaround'. Valuations can be made through the buyer's own expertise, or you can use the services of qualified business valuators.
What are the key issues in valuation and financing? They include:
Quality of financials
Revenue trends
Cash flow and working capital positions (Throwing off cash is better than using cash!)
When we work with clients we spend a lot of time 'normalizing' those financials to ensure the right assumptions and costs are in place. Factors affecting the interest rate and financing costs will revolve around key areas such as debt load, or the requirement to fund unsecured loans around intangible assets and goodwill or intellectual property, cash flow, and overall profitability.
In some cases, buyers may wish to obtain an independent business valuation and business advice from a third-party professional, which often happens for larger transactions.
HOW CAN BUSINESS FINANCING BE ACCOMPLISHED
How do you finance a business acquisition in Canada? That's a question we get a lot at 7 Park Avenue Financial. Funds come from your own equity investment into the transaction, and a combination of a VTB/ Seller financing component, as well as participation from a ban, commercial finance company, or an asset-based lender. If the target company has enough assets the transaction can be significantly leveraged. Understanding the factors to consider around on funding of the business is key .
Business acquisition loan rates vary due to a number of factors - the size of the transaction, the overall credit quality of the target company, management experience, type of financing utilized vis a vis traditional financing or alternative finance.
Government SBL loans can also be used to finance a purchase under 1 Million dollars, which is the cap under the program. It is very rare, in fact, impossible to do a 'no money down' transaction in Canada. The 100% use of ' OPM ' - other people's money simply doesn't happen
The Canada Small Business Financing Program is the equivalent of U.S. sba loans '. These loans are commercial loans using bank financing with the majority of the loan guaranteed to the banks and credit unions by the government of Canada. Talk to 7 Park Avenue Financial about how we can streamline the loan application process! Buyers may also qualify for another type of government financing if they can meet bdc loan / bank loan requirements.
Business purchase financing for franchises is a popular use of the program .
We also prepare a business plan and projections as required by the government program - Our business plans meet and exceed the requirements of bank and commercial lenders.
The bottom line? Business acquisition finance can be facilitated through :
Term loans from traditional and alternative lending sources - credit lines , etc
Government loans
Asset-based loans - business asset financing - Alternative lending options for business - The role of business collateral is a key focus in asset-backed lending
Cash flow loans / Mezzanine financing ( when collateral requirements don't meet all the needs )
Seller financing/vendor take back notes to help complete an optimal financing structure
Commercial mortgages for commercial real estate transactions
CONCLUSION - YOUR LOAN FOR BUSINESS ACQUISITION NEEDS
Acquisition financing allows you to access business capital to purchase an existing business, including a franchise. Proper financing allows you to meet your entrepreneurial goals with the right financial resources tailored to your particular transaction and will help you maximize the chances of being approved successfully.
"The most important aspect of business acquisition financing is to find the right partner to help you achieve your goals and support your vision." - Bill Gates, co-founder of Microsoft - Let the 7 Park Avenue Financial team be the financing partner you need for your business
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of success in how to finance business acquisitions via business acquisition lenders.
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
How do you finance a business purchase?
How do small businesses obtain financing?
What is business purchase financing and how does it work?
Business purchase financing is a type of commercial financing using a variety of types of loans to buy an existing business - Funds are used to acquire the assets of a business as well as to provide financing for ongoing operations and growth
What are the key factors to consider when evaluating financing options for a business purchase?
Key factors to consider in buying a business include understanding the due diligence process around the evaluation of financial statements, operations of the business, as well as the true value of assets. Operational performance as well as existing liabilities of the business are also important to consider.
What are the risks and benefits of using alternative lending options versus traditional bank financing?
Alternative lending options versus bank financing often offer faster turnaround approval times with more flexibility around repayment and overall deal structure. Asset-based lenders will often come at a higher cost but have the ability to provide more financing on a transaction. Buyers of a business should compare traditional versus financial institutions such as banks.
business purchase financing buying existing business
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