Business Acquisition Loans & Financing
The purpose of an acquisition loan is to fund a merger or acquisition of a competing business. As the purchasing company, you are in position to obtain capital from a bank or financial institution to ensure that the deal is closed on time and with the specified terms in place.
In most cases, a company buying another organization agrees to pay a specified amount before the sale takes place. The way that money is raised depends on many factors including the financial standing of the purchasing business as well as the terms of the agreement.
Many companies with a history of acquisitions will rely on a business loan. This is not because they are low on funds, but instead to leverage the money from the bank in order to keep their capital free.
Although 100 percent acquisition loans are available, the most advantageous circumstance is at least 20 percent down. Not only does this give you a better chance of receiving a loan, but it also results in a lower monthly payment.
How to Find an Acquisition Loan
Although relying on an acquisition is a big step in the future of your business, finding a source of funding can be a simple process. Generally, this starts with contacting several reputable banks and financial lending institutions. Many institutions specialize in acquisitions, buyouts, and corporate takeovers.
To ensure the best possible loan, compare the terms of each. You can play one bank off the other, letting them fight for your business.
Although qualifications vary from bank to bank, several factors are usually considered:
- Cash flow history of both organizations
- Credit history of the borrowing company
- Experience of the management team
- Quality of the company being acquired
Acquisition Loan Terms
While every loan is different, here are some of the most common terms:
- Loan amount of at least $250,000
- Project cost funding up to 100 percent
- Up to 25 year term based on the assets being transferred. Longer terms are usually for deals that involve real estate.
Regardless of industry, acquisition loans, as well as other types of financing, are available. Before you decide to purchase another company, speak with several lenders regarding acquisition loans and what they have to offer.