While acquiring an organization is a complex undertaking that can take years to move from concept to completion, getting a loan to buy a business can and should be a relatively straightforward process. Here are three best practices to help you move forward effectively, efficiently and successfully:
1. Identify and Confirm the Strategic Value
Before applying for a loan to buy a business, analyze and confirm that the new acquisition is going to augment your current offerings. Prospective lenders will want to see that the purchase will increase your current strategic value, and make your business stronger and profitable in the long-term. That’s why this step is a win-win for business owners and lenders! You both want to see success and confirming the strategic value of a new business acquisition is the perfect way to show this.
2. Determine How Much You Need
There are several ways that you can determine how much a business is worth, which will enable you to determine how much you need to borrow. Methods include:
- Capitalized earning approach – In this approach, you’ll take the business’ future earnings and divide them by the capitalization rate. This looks at the current cash flow, the annual rate of return and the expected value of the business.
- Excess earning method – This method is known as a good hybrid because it takes the business’ asset values into account and discounts expected cash flows.
- Tangible assets method – The tangible assets method takes the total assets of a company and subtracts any intangible assets such as patents, trademarks, liabilities, etc.
Using multiple methods should yield a value close to the true valuation of the business. Because the value of the business determines how much money you will borrow, ensure that you handle this part of the process carefully. If you borrow more money than you need, it will leave “dead money” in your account, which drives up your cost of borrowing.
3. Choose the Right Funding Partner
After you’ve confirmed that acquiring a business is in alignment with your overall strategy and scope, and determined how much you need to borrow, the next best practice for getting a loan to buy a business is choosing the right funding partner. That’s where we invite you to put National Business Capital on your list.
Getting a Loan to Buy a Business from National Business Capital
At National Business Capital we provide large, long-term loans for clients like you who have an established business, and want to take it to the next level through a strategic acquisition. Our business financing specialists will work with you to help determine the right amount you need to borrow, and identify options that maximize your flexibility and control. Furthermore, impaired or low credit is typically not a deal-breaker for us. We’re far more interested in what you have planned for the future, and how we could be part of your success story.
To learn more, contact our team today or complete our two-minute application. Your consultation is free, there’s no obligation or risk, and we pride ourselves on doing things the right way. If you read the testimonials from our satisfied and impressed clients, you’ll see that we consistently live up to that high standard.