If you are interested in conducting a business acquisition, the first question on your mind is probably about funding. Are you supposed to drain your own company funds in order to acquire another business?
The answer is yes, but not really! There are many business acquisition financing options, we will explore a few in this article.
How to Finance a Business Acquisition
Business acquisition financing describes the process of funding a merger or acquisition deal. These deals help you combine two different companies into one, potentially doubling your consumer reach and profitability. As a buyer, the question of how you will finance the whole procedure is a vital one, and these are a few possible options available to you.
1. Using Company Funds
Your first plan may involve using company funds. Indeed, if you have been profitable enough in the past few years to experience strong growth in company finances, you can even finance the acquisition process solely by tapping into your own earnings.
Most of the time, however, business acquisitions are quite expensive, so you may have to explore other alternatives.
2. Taking Out an SBA Loan
An SBA loan is catered towards smaller businesses in need of finances. If you are struggling to pay off an acquisition, you can apply for this loan. Some benefits of SBA loans are that they don’t really consider your credit score, and they have relatively low interest rates.
This loan could allow you to borrow up to $5 million, which may be plenty for a small business looking to acquire another company.
3. Applying for an Asset-Backed Loan
An asset-backed loan requires you to provide physical assets as a form of collateral. Lenders will typically evaluate your acquisition and observe whether you are likely to generate more cash inflows from the deal, before agreeing to lend to you.
Because they require a liquidation of your assets if you cannot repay them, this loan is considered quite risky. If things go wrong with the acquisition, you may be stripped of your assets and find it difficult to build yourself back up.
4. Using a Bank Loan
The traditional way of appealing for loans is by going to a bank. The process may, however, be complicated. They will scrutinise your plans, your credit score, and the overall situation of your company.
If you pass all the tests, you may secure a good loan with a low interest rate.
Business Acquisition Financing
Business acquisitions can be profitable in so many ways, but the business acquisition financing process may be a drag for you. The best way to choose the right funding is to evaluate the different options, and see how they can benefit you. If they are too risky, for instance, you may be threatening your own company’s survival.
Overall, if you don’t have enough company funds to pursue a business acquisition, don’t let this kill your dreams! There are plenty of ways you can still make this a reality.