Tips on Buying a Business- How Am I Going to Pay for This?

This is a huge business buying tip for you...

Please don’t make the mistake of thinking that because you are buying an existing business that a bank is just going to hand over the money. Even if the business is doing extremely well, this most likely will not happen.

It is true that buying a solid business with strong cash flow will help, but the business type, collateral, length of time in business and your background are very significant. Of course, the down payment you can provide is also a factor.

And no, you can’t just apply for an SBA loan. These are not easy to get and yes you do have to pay them back. The government isn’t that nice. Again, business type, your personal collateral and a lot of other factors determine this loan process. Normally, this is not the fastest way to get a loan either.

The most likely ways you will fund a purchase are with your own money (including property equity, savings, etc.), non-traditional lenders (investment banks/brokers specializing in business loans) and/or seller financing (this is the best by far).

In addition to paying for the business, you need to determine how much excess capital you may need. You will most likely need some cushion money. Yes, buying a business gives you a running start, but it’s very likely that you won’t be running on a smooth track for the first few months after the transition from the seller.

Knowing how you will pay for a purchase, especially how much you will have for a down payment out of pocket (or through friends and family) will be a huge factor into determining businesses you can afford. If you can't afford it, it's a waste of time for you, brokers and sellers to bother talking about it.

Once you know you can cover a 20 to 50% down payment (and it can be that high especially for a seller holding a note but it's worth it), you can seek out approval for a bank loan if that's the avenue you really want to take.

So what can you afford? That's for next time...


To Your Business Buying Success-

The Business Buying Guru