A business acquisition loan provides financing to small businesses looking to expand their reach by purchasing another business. There are a couple of different ways small business owners can utilize an acquisition loan. One option is to purchase an existing business outright. Maybe it’s a competitor or a related industry you want to expand in. Or maybe you’re interested in owning a business, but don’t want the hassles of navigating a start-up. Alternatively, an acquisition loan can also be used to purchase a franchise location.

Lenders review a variety of criteria when evaluating your application for a business acquisition loan. The importance placed on each factor may vary depending on the type of loan you apply for. For instance, a term loan, such as an SBA business acquisition loan, will typically require a down payment minimum. A line of credit application may place more emphasis on your revenue and cash flow.

For most small business loans, a lender will review factors like your credit history, time in business, and revenue to determine if you qualify. If you’re buying a business or franchise, your lender will look at slightly different criteria to ensure that you’re investing in a viable business, and in turn, will be able to repay the loan.

Be prepared for these specific application requirements for a business acquisition loan.

• Credit review: Lenders look at both your business credit report and the personal credit reports of any partners with a minimum 20% ownership stake.
• Revenue and debt: In order to make sure your business can handle the payments of your new acquisition loan, the lender reviews both your revenue and total debt payments.  
• Minimum down payment: Some types of loans allow for a business acquisition with no money down. But others (particularly term loans) do require a down payment, usually ranging between 10% and 15% of the loan principal.
• Business plan: Most lenders require an explanation of how you intend to use the funds to purchase a business and expand your existing operations

You can get a business acquisition loan from a variety of sources including banks and credit unions, SBA lenders, and online lenders. Before getting a business acquisition loan, make sure to understand that where you get your loan from matters.

• Banks and credit unions: Banks and credit unions provide competitive rates for business and acquisition loans, but they typically require credit scores of at least 700, a minimum of two years in business, and a sizable initial down payment.
• SBA lenders: SBA loans are government-backed and come with more flexible loan terms and lower interest rates. However, they can be difficult to qualify for and can be slow to fund.
• Online lenders: Qualification requirements through online lenders may be less strict than those through banks, credit unions, and the SBA. Funding may also be faster through online lenders. However, repayment periods may be less flexible and interest rates may be higher taking this route.

Like all loan types, there are benefits and drawbacks to getting a business acquisition loan.

Pros

• Flexible collateral requirements: Allows you to obtain a business loan without collateral other than the previous business’s assets.
• Diverse financing structures available: Multiple types of business loans available for an acquisition, such as term loan or line of credit.
• Protect your cash flow: Support growth without tying up your working capital.
• Skip the startup stage: Own a mature business instead of building one from scratch. 

Cons

• Getting approved can be difficult: It can be difficult to get approved for a business acquisition loan without a good credit score and stable finances.
• Interest rates can get very expensive: Make sure that the interest rate on your business acquisition loan isn’t so high that your business cannot be profitable.
• Your loan may require a down payment: Depending on your lender and loan amount, you may be asked to pay a down payment on a business acquisition loan.

Business acquisition loan amounts range from $250,000 all the way up to $5,000,000. The amount you qualify for depends on a number of factors, including your credit score, company revenue, and existing debt. Every lender will review these factors to make sure your company can safely handle your new loan payments.

Focus on types of business loans that don’t require a down payment. Both lines of credit and revenue-based loans are good starting points when exploring your options. Comparing multiple loan structures from different lenders in TrustPay network is a smart way to find the right type of business acquisition loan for your needs.

TrustPay makes the business acquisition loan process as easy as possible. The application takes just 15 minutes and you’ll get a quick response. Plus, funding arrives in your bank account within 24 hours of getting approved.

There are more nontraditional, alternative options to consider when looking for a business acquisition loan. These can include angel investors, crowdfunding campaigns, family and friends, and more. Make sure to understand considerations and stipulations when deciding on a business acquisition loan.