Find out how to achieve your small business dreams by buying an established business.
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.
OnDeck Small Business Loans
Among the largest online business lenders offering term loans and lines of credit at competitive fixed rates.
- Minimum Amount: $5,000
- Maximum Amount: $500,000
- Loan Term: 3 to 36 months
- Simple online application process with fast decisions
- Dedicated loan specialists and loyalty benefits
- Must have been in business for at least one year with annual revenue of $100,000+
- Must have a personal credit score of 500+
What loans can I use to buy a new business?
|Loan||How it works||Where can you get it|
|Business term loans||Borrow a lump sum that you repay over a fixed period of time with interest and fees.||Banks, credit unions, online lenders|
|SBA loans||Similar to a term loan, only part of the loan is backed by the government, resulting in lower interest rates.||Banks, credit unions, online lenders|
|Vendor financing||Buy a business directly from the seller with a loan built into the terms of the sale. Repayments are often in a percentage of the business’s future profits, though terms and conditions vary depending on what you negotiate with the seller.||Small business sellers|
|Roll over for business startups (ROBS)||If you have over $50,000 in a 401(k), IRA account or other retirement account, you can invest some of those funds into a new business without having to pay extra taxes or early withdrawal fees.||Your retirement account|
|Secured business loans||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||Borrow against your home’s value to get financing for your new business. Home equity borrowing is usually tax-deductible and can come with longer terms than your average personal or business loan.||Banks, credit unions|
Compare loans you can use to purchase a business
How to get a loan to buy a small business
When you want to get a company off the ground, your choices are to start fresh or buy an existing business. Buying a small business is usually more cost-effective, but you may also run into the same challenges as the previous owner such as 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:
- Determine how much money you will 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 estimation is as accurate as possible.
- Have a solid business plan. Your plan should clearly show how the business will manage expenditures and income to achieve profitability and how long this will take.
- Consider your repayment timeline. How long will it take you to pay back the loan? How much will you 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, and it’s important to know your options before settling on a specific type of loan.
Getting 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 financing is your ability to convince a lender that you can buy a small business and grow its revenue within a reasonable timeframe.
- 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 what you plan to spend the money on. This is necessary for your own planning and also essential information that all lenders need. If the money will go towards staff or refurbishment costs, they might expect a slower return on investment. Money pushed towards inventory and marketing might expect 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 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 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 intangibles.
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.
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, and this option should not be disregarded. Keep everything official and professional by keeping 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 look. Keep loans down by putting up 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.