Understanding Common Types of Business Acquisition Loans

There are many different financing options available for someone who is starting a business.

While some people choose to build their organization from the ground up, others desire to purchase an existing business. In some cases, an entrepreneur may even want to open up their own franchise.

A business acquisition loan is a type of financial arrangement specifically designed for this purpose. Though a complex type of loan when compared to things like personal loans or small business loans, business acquisition loans can be a versatile and handy resource in many instances.

Why are Business Acquisition Loans Difficult to Get?

Every type of loan requires preliminary work and research, a business acquisition loan (or franchise loan) is much more complex. This is because these loans require lenders to find out various factors about the situation. This includes everything from the borrower’s credit history to the history of the location being acquired to the viability of the borrower’s plan for the new business.

Because they are especially difficult to get, business acquisition loans are a type of funding many entrepreneurs have never dealt with in the past. But since starting a franchise or purchasing an existing business can be a lucrative endeavor if handled properly, this loan is something many people are interested in.

What Types of Acquisition Loan Options are Available?

A person who is looking to acquire a business or start a franchise may consider a term loan as their first option. This kind of lump-sum payment allows a person to get plenty of financing in a short timeframe. According to Entrepreneur, the repayment term will usually range from one to two decades. Collateral may be required for this type of loan.

SBA 7(a) loans are a common type of financing option set up by the Small Business Administration. Acquisition is included in the criteria for which this type of loan may be used, making it a great option for those who are in charge of growing organizations and only need a modest amount of funding for their acquisition plans.

Additional Options for Acquisition and Franchise Loans

Sometimes a person may choose to start off as a business owner by acquiring another business. Though this can be tricky and requires them to demonstrate responsibility to the lending institution, a startup loan can be used in this type of instance.

Likewise, equipment loans are also an option for those who need to buy the machinery of a business they are acquiring. In order to make sure they can get everything they need, many people look for special types of financing.