This article contains links to products or services from one or more of our advertisers or partners. We may receive a commission when you click or make a purchase using our site. Learn more about how we make money.

How to fund the purchase of a small business

Achieve your small business dreams by buying an established business.

Updated

Fact checked

Editor's choice: First Down Funding business loans

First Down Funding business loans logo
  • Works with bad credit and most industries
  • Only 100 days in business required
  • No credit check
Check eligibility

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.

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.

Business term loans

$5,000 to $5 million

Borrow a lump sum that you repay over a fixed period of time with interest and fees.

Banks, credit unions, online lenders

SBA loan programs

$5,000 to $5 million

Similar to a term loan, but part of the loan is backed by the Small Business Administration, resulting in lower interest rates.

Banks, credit unions, online lenders

Vendor financing

Up to 100% of the business’s value

Buy 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

Rollover for business startups (ROBS)

Varies based on your retirement account

If you have over $50,000 in a 401(k), IRA account or other retirement account, you can invest a portion of your funds into a new business without having to pay extra taxes or early withdrawal fees.

Your retirement account

Secured loans

$5,000 to $5 million

Take 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 and lines of credit

Up to 80% of your home’s value

Borrow against your home’s value to get financing for your new business. Home equity loans and lines of credit are usually tax-deductible and may have longer terms than your average personal or business loan.

Banks, credit unions

Compare loans you can use to purchase a business

Data indicated here is updated regularly
Name Product Filter Values Loan amount APR Requirements
First Down Funding business loans
$5,000 – $300,000
Fee Based
At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400
Alternative financing up to $300K with highly competitive rates.
Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.
ROK Financial business loans
$10,000 – $5,000,000
Starting at 6%
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.
OnDeck small business loans
$5,000 – $250,000
As low as 11.89%
600+ personal credit score, 1 year in business, $100,000+ annual revenue
A leading online business lender offering flexible financing at competitive fixed rates.
Rapid Finance small business loans
$5,000 – $1,000,000
Fee based
Steady flow of credit card sales, bad credit OK
loading

Compare up to 4 providers

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 three 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 four 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 tocompare startup business loansto 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 six 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 alsosmall business grantsthat 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 campaignto 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 tocompare terms and have a strong business planbefore signing on the dotted line. Otherwise, it’s your savings and credit on the line.

Frequently asked questions

More guides on Finder

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and finder.com Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.

2 Responses

  1. Default Gravatar
    FelixJune 10, 2019

    Right now I have assets and I want to grow my business so I am kindly asking you if you can offer me a loan.

    • Avatarfinder Customer Care
      nikkiangcoJune 13, 2019Staff

      Hi Felix,

      Thanks for getting in touch!

      It’s good to know that you have assets and you’re wanting to grow your business! To know if you can be approved a loan. review the eligibility criteria of the loan before applying to increase your chances of approval. Read up on the terms and conditions and product disclosure statement and contact the bank should you need any clarifications about the policy.

      Hope this was helpful. Don’t hesitate to message us back if you have more questions.

      Best,
      Nikki

Go to site