Editor's choice: First Down Funding business loans
- No prepayment penalties
- Competitive rates
- Works with bad credit and most industries
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.
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.
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.
|Loan||Loam amount||How it works||Where you can get it|
|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|
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:
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.
Lenders are interested in four main aspects when considering you for a business 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.
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.
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.
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.
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.
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.
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.
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.
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.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.