How to get a bank loan for buying business? An essential guide

Working with existing processes and tweaking them as you see fit is much easier than having to dedicate time and resources to create brand-new processes and workflows from the ground up.

From existing employees to routine systems, you’ll have a framework already laid out for you. With fresh eyes as the new owner, you can instead spend time determining which processes can be improved and optimized rather than stressing about the initial setup.

Often, new businesses will need to shell out a lot of cash to build their brand awareness. Different marketing and promotion strategies can be quite costly. When they don’t work, it could be thousands of dollars down the drain.

By taking out a loan to purchase a business, you would get an established brand to work with. While you can adjust your branding, it’s still much easier to do that than start from scratch.

One of the most important things that you need to get a business off the ground and keep it running is cash flow. It also happens to be one of the most difficult aspects for new businesses, often having to worry about new investors or other financing alternatives to have some cash for daily operations.

While you may need to take out a loan to buy a business, the trade-off is that you’ll get a stable revenue stream from existing customers.

Having a loyal customer base is extremely beneficial for any business owner. You won’t have to make as many marketing or sales expenses, meaning that you can utilize your funds for improvements in other areas of the business.

Your biggest challenge with an existing customer base is to ensure that you can retain them, which is also very possible to do by enticing them with new or improved products or services should you use company funds to develop them.

While having an existing customer base to sell to is one of the most important things for a business, it’s not just customers that you want to worry about. Your business is also a customer of your suppliers and will likely find it difficult to operate without them.

Luckily, one of the benefits of buying a business is that you’ll have an established business network of suppliers and partners. They’ll already know what your company needs and can help you in growing your business.

Things like steady cash flow, a loyal customer base, and a solid network of operations all add to contribute to a business’ history. Taking out a loan to buy a business will provide you with the added benefit of having existing financial records for your newly acquired business.

Not only will you get a business with a proven reputation, but you also will have an easier time should you want credit given that you have the records to back it up.

You can also explore our article on how to start a business if you're eager to embark on your entrepreneurial journey and build a business from the ground up. Discover essential insights for those who prefer starting their own venture over buying an existing one.

The first step to getting a loan to buy a business is to do your research. There are plenty that you’ll have to research, starting from the market you’re interested in, to the banks that could offer loans to you.

Once you figure out a business that interests you, for example, you’ll want to perform some due diligence. This includes finding out about what the business finances look like, whether or not the company has a good credit score, the brand reputation of the business, and many more.

Other than looking through their records, you can dig deeper into the company by getting customer reviews and talking to its business partners and suppliers. 

At the same time, you don’t want to leave researching business purchase loans too late. Look into which banks are offering a loan to buy a business and see if you could get an idea of their terms.

There are plenty of documents that you’ll need to submit to get a bank loan to buy a business. Make sure that you are aware of what documents are required from you.

You want to prepare them early on, especially if you know you’ll need supporting documents from the business you’re buying. Communicate with the current owners to get the necessary documents, such as the business’s balance sheet, bank statements, and tax returns, and compile them accordingly.

During this stage, you also want to be working on an extensive business plan for the business you’re buying.

Suggested read: How to get a business loan without collateral in Australia?

Once you have all your documents ready, you can proceed with your application. While you should prepare all your documents before formally asking for a loan to buy a business, it’s also not a bad idea to start your discussion with a business banker early on. You can ask questions and get assistance in ensuring that your application is complete. 

You also don’t want to leave discussions too late to be sure that your funds are ready when it’s time for you to sign the deal. Bankers may need some time to assess your application and the new venture, so you want to allow yourself plenty of time to sort out your loan to buy a business.

Many banks offer business credit lines that you can utilize to grow and scale your business, including buying out another existing business. Other non-bank financial institutions may also offer the same thing. Typically, however, you’ll need to have an established business already to get a business credit line.

By selling shares, you can raise some capital to fund your new venture. However, keep in mind that equity financing requires you to first have a business, meaning that this method is only applicable to business owners looking to acquire others to scale. You’ll also have to give up some ownership when you sell shares.

Angel investors are individuals or entities that invest their personal funds in businesses. Most angel investors are experts in their fields and have plenty of market and industry knowledge. They typically invest in businesses that are just starting out, but you could make a case to get funding to buy an existing business. 

Much like angel investors, venture capitalists, or VCs, will also invest in your business. However, VCs don’t rely on their personal funds, rather drawing from funds from corporations, hedge funds, and other sources. Venture capitalists will likely invest a large amount of money, but may require a business to be in the growth or maturity stage.

While business grants are typically difficult to acquire, it’s possible to get funding from your federal, state, or local government in the form of a grant. Grants are interest-free funding and do not require you to repay the government. However, keep in mind that you’ll have to meet very specific requirements for a grant.

You may be eligible for government-funded schemes to buy a business. They are similar to business grants in that the government is involved in the funding, but there may be different terms compared to business grants. For example, you could get funding in the form of a loan, which, unlike grants, you will have to repay.

You don’t have to rely on someone else’s money to buy a business. Loan options are great if you are looking for some additional funding, but if you have enough of your own funds, you could purchase a business that way. Be sure that you are aware of how much money you’ll be sinking into it.