Smart business purchasers will usually try to leverage their acquisition as the first priority.
In other words they will try and acquire the majority, controlling share in the company by paying as little as possible from their own pocket.
It has to be said that many experienced purchasers of businesses are not always actively looking to make a particular acquisition. Often they are generally on the lookout for a deal where the company is reasonably priced, and can offer a dependably high rate of return on investment.
Commercial loans are usually one of the most effective methods of buying an existing business. Rates are often competitive and payment schedules can be quite flexible. Lenders can pay up to 75% of the purchase price with repayments spread up to 20 years, though at this level business loan collateral must usually be offered.
There are other sources of acquisition finance that can be used in conjunction with or in place of commercial loans. A smart business purchaser will need a certain level of creativity, resourcefulness and lateral thinking.
Here are the four main areas of creative business purchase funding you can investigate.
Personal funds and borrowings
Personal cash savings
Loans from family and friends
Take advantage of the numerous credit card deals that offer 0% balance transfers and free credit periods.
Obtain a secured loan from bank / building society / finance company (up to £250k).
More sources are listed in our subscribers section.
Find business partners
First look at the existing owner of the business. Rigorously hound the seller to retain a minority equity stake.
Persuade a new partner to give you funds in return for an equity stake.
Explore business angel networks
Approach venture capital associations
More sources are listed in our subscribers section.
Search for more sources of funding
Negotiate to reduce the up-front cash amount payable for the business and extend the earn-out amount or period.
Take out or increase the target company?s bank loan.
Look at asset lending for the business.
Does the company have surplus or obsolete stock? If so, look at selling it off.
More sources are listed in our subscribers section.
Deal and finance structuring
Try and obtain financing from the vendor.
Postpone the initial business purchase payment for as long as possible.
Assume additional liabilities not mentioned previously by the seller.
Approach company suppliers and negotiate longer payment terms with major suppliers.
Change inventory procedures to consignment terms.
More sources are listed in our subscribers section.
There is no argument that negotiating finance and deal terms can be an arduous and time-consuming process. However it can make all the difference in securing the business, and reduces the personal onus and risk to the purchaser. It is very satisfying when the business performs over the following few years and justifies the level of financial risk inherent in the initial leverage.
We have been working with leading structured finance experts and commercial lenders for over 10 years. For a free assessment of your funding options, please enquire here.
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