How to fund the purchase of a small business

Achieve your small business dreams by buying an established business.

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Running your own small business is an appealing idea if you have the ingenuity and know-how, but it can take a lot of money to get it up and running. When financing, you have to convince a lender that you know how to manage a business and that you’ll be making a profit. There are different terms and conditions to be aware of — but also many options and tricks to help you get a better loan.

SharpShooter Funding Business Loan

  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $300,000
  • Interest Rate: Starting at 5.49%
  • Requirements: Annual business revenue of $60,000
  • Borrow up to $300,000
  • Online loan application

SharpShooter Funding Business Loan

SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).

  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $300,000
  • Interest Rate: Starting at 5.49%
  • Requirements: Annual business revenue of $60,000

What loans can I use to buy a new business?

When you’re ready to make an investment into your future and buy a new business, you can use one or more of these loans to finance your purchase.

LoanLoam amountHow it worksWhere you can get it
Business term loansVaries from $5,000 to millions of dollarsBorrow a lump sum that you repay over a fixed period of time with interest and fees.Banks, credit unions, online lenders
Canada Small Business Financing Program (CSBFP) LoanUp to $10,000,000 (no more than $350,000 can be used for purchasing or improving leased property)Similar to a term loan, but part of the loan is backed by the Canadian government, which makes it easier to qualify for.Banks, credit unions, online lenders
Vendor financingUp to 100% of the business’s valueBuy a business directly from the seller with a loan built into the terms of the sale. Repayments are often a percentage of the business’s future profits, though terms and conditions vary depending on what you negotiate with the seller.Small business sellers
Secured loansVaries, but can range from $5,000 to $5 millionTake out a term loan using assets of the business you’re going to buy — like equipment and real estate — as collateral.Banks, credit unions, online lenders
Home equity loans, Business lines of creditUp to 80% of your home’s valueBorrow against your home’s value to get financing for your new business. Interest paid on home equity loans and lines of credit are usually tax-deductible and may have longer terms than your average personal or business loan. You can also deduct fees associated with reducing your loan amount or penalties for paying it off early.Banks, credit unions

Compare business loans

Before applying for a business loan to fund the purchase of a business, contact a lender to make sure you’re eligible for funding.

Name Product Interest Rate Min. Loan Amount Max. Loan Amount Loan Term Minimum Revenue Minimum Credit Score
SharpShooter Funding Business Loan
5.49% - 22.79%
6 months - 5 years
$5,000 /month
SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).
OnDeck Business Loan
8.00% – 29.00%
6 - 18 months
$10,000 /month
OnDeck offers loans up to $300,000 for small business owners working in approved industries who have been in business for at least 6 months with a minimum monthly revenue of $10,000.
Lending Loop Business Loan
4.96% - 26.50%
3 months - 5 years
$100,000 /year
Lending Loop offers personalized loans up to $500,000 for small business owners who have been in business for at least one year and can show an annual revenue of at least $100,000.
Company Capital Business Loan
7% - 29%
3-18 months
$5,000 /month
Company Capital offers business loans of up to $100,000 to small business owners who have been operating for at least 6 months and can show a minimum of $5,000 in monthly revenue.

Compare up to 4 providers

*The products compared on this page are chosen from a range of offers available to us and are not representative of all the products available in the market. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.

Representative example: Marcos buys a book store

Marcos has been working at a large publishing house in British Columbia for the past 25 years. He wants to find a slower-paced position that will give him something to do in retirement. Marcos comes across an old book store and cafe for sale not far from where he lives and thinks it might be just what he’s looking for.

After visiting the shop and speaking with the owner, Marcos submits an offer to buy the entire business plus the land it sits on for $120,000.00. The owner accepts the offer, and Marcos applies for financing from an online lender. Thanks to his great credit history, he is approved.

Both Marcos and the former shop owner agree to forfeit sales tax on the transaction by signing Form GST44, which can be done because they are both GST/HST registrants. Had this form not been signed, Marcos would’ve had to pay around 12% GST/PST on the fair market value of the business’s taxable assets (which includes equipment, computers, software, shelving and office supplies, among other things). In that case, he could’ve treated the GST as deductible on his next business tax return.

Cost of purchasing a book store$120,000.00
Loan typeBusiness loan (term loan)
Loan amount$120,000.00
Interest rate (APR)8.90%
Loan term5 years
Additional feesOrigination fee of 3.00% ($3,600.00)
Monthly payment$2,485.18
Total loan cost$149,110.80

*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.

How to get a loan to buy a small business

Buying a small business is usually more cost-effective, but you may face the same problems that made the original owner sell, like poor location, outdated equipment or a lack of customers.

There are 3 main factors to consider before you even start to look for a lender:

  1. Determine how much money you’ll need. Borrowing too much means you’re paying more in interest than you need to. Borrowing too little means you won’t have enough and may need to attempt a second loan, likely at worse rates. Make sure your estimate is as accurate as possible.
  2. Have a solid business plan. Your plan should clearly show how the business will manage expenditures and income to remain profitable. It should also outline how long it will take to pay off the loan.
  3. Consider your repayment timeline. Determine how long it will take you to pay back the loan and how much you’ll be able to afford to repay per month. Will it be a consistent amount or can you pay back more as the business grows?

There are many different types of business loans. It’s important to know your options before starting an application or putting together a business plan.

What do lenders look for in an applicant?

Lenders are interested in 4 main aspects when considering you for a business loan.

  • Your experience. People who already own businesses or those with experience managing companies have an edge on the competition. Your lender will want to see evidence that you know how to run a business. Otherwise, you may be too much of a risk. If you have limited experience, try partnering with someone with more — especially if they have experience in your industry.
  • Your business plan. A business plan goes beyond laying out your goals for the future. When presented to a lender, it should highlight the costs and profits your business is predicted to have. Your projections should also include how your leadership as the owner will help make increased revenue a reality.
  • Your assets. Whether you’re a new business owner or one with years of experience, a potential lender will want to see that you’re good for the loan should your business fail. Your creditworthiness, finances and the business you intend to buy will all play a role in your approval decision.
  • Your industry. Beyond the business itself, a lender will be concerned with the industry you choose to sink money into. If it thinks the industry is too risky — no matter how well the business itself may be doing — you may not be able to secure a loan.

How can I get approved for a startup loan?

If the business you’re purchasing has been operating for less than a year, the lender will likely consider it a startup. The main obstacle between you and a loan is your ability to convince a lender that you can buy a small business and grow its revenue within a reasonable amount of time.

  • Consider how profitable it will be in concrete dollar values and draw on as much evidence as possible. You must have financial projections to convince the lender that the business will be profitable.
  • Having relevant small business management and financial experience may sway potential lenders. Don’t hesitate to mention that your own business history can help you succeed.
  • Break down exactly how you plan on spending the money. If the money will go towards staff or refurbishment costs, a lender might expect a slower return on investment. Money pushed towards inventory and marketing might mean a quicker return.

Rather than applying for loans everywhere with a low success rate, your time is better spent honing in on a small number of good lenders whose eligibility criteria you meet. Before you can do this, you need to compare startup business loans to rule out any you don’t qualify for.

6 more ways to finance business acquisition

Getting a loan can be challenging, but an applicant with motivation and a good business plan has no shortage of options. Here are 6 more ways to get money to buy a business.

1. Venture capitalists

These investors are groups or individuals that aggressively look for big returns on investment and have a particular interest in new startups. They typically offer money in exchange for equity or a share of the company ownership.

When the company grows and succeeds, this equity multiplies in value, making it a high-risk, high-return strategy for venture capitalists. To attract venture capitalists, you should have a plan for enormous, potentially global, business growth.

2. Angel investors

A more specific type of venture capitalist, angel investors are usually individuals rather than groups. They too want to acquire equity, but usually take a more active role in the success of the company and offer money as well as advice, experience, connections and other priceless intangible assets.

3. Government grants

The majority of small business assistance from the government comes in the form of free or inexpensive advisory and guidance services. There are also small business grants that offer funds to businesses that meet certain requirements. See how business grants compare to business loans and which might be better for you.

4. Crowdfunding

Crowdfunding involves setting up an online campaign to raise small amounts of money from the public. This can be a good litmus test of whether or not the general public is ready to believe in your business.

Your success here is largely down to luck and the size of your social network, but your odds improve by being skilled in marketing. Being able to offer your supporters gifts, freebies and having a promising, well thought-out business plan also help.

5. Family and friends

The terms, conditions and benefits you get from these loans depend on how much money your friends and family have and how much they are willing to invest in you. Many successful enterprises got their start with loans from family and friends, so this option shouldn’t be disregarded. Keep everything official and professional by maintaining a written record of any deals made.

6. Your own savings

If you believe in your business plan, then this is a good place to start. Keep loans down by using as much of your own personal savings as you feel comfortable with. Some lenders, particularly angel investors and venture capitalists, will regard this highly and be more likely to invest in your business if you have this kind of personal stake in its success.

Bottom line

Buying a business can be a stressful time, especially when you’re searching for ways to make it affordable. By seeking out the right loans and investors, you can make your dreams a reality. Just be sure to compare terms and have a strong business plan before signing on the dotted line. Otherwise, it’s your savings and credit on the line.

Check out our detailed guide to business loans to learn more about interest rates, fees, terms, how to apply and more.

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