What financing options do I have to support my next acquisition?
Whether you’re new to business or looking to expand your empire, if you decide to make an acquisition you’re likely to need a financial helping hand. If you’re in the position to sell a business you already own, this could be the simplest option, but if you want to keep your portfolio intact or you don’t have a business to sell you’ll have to investigate the funding options available to you.
These days there are many funding options available to those investing in new businesses, and the number of options seems to be growing all the time. We’ve explored some of the most popular and common so you can choose the most appropriate for you.
Loans
Loans can be provided by a private investor or a bank and will be either secured or unsecured. Both types of loan can potentially be costly, but if you choose to go down the route of an unsecured loan then it’s more likely too expensive. This is due to the fact that your lender will have nothing to secure the loan against should you fail to pay, so they’ll consider it higher risk.
A secured loan will be secured against something you own so they can take this from you should you default on your loan repayments, making it the higher risk option for you but the lower risk option for your lender.
Asset-based loans
An asset-based loan is very similar to a secured loan. Essentially, you will select an asset or a group of assets that the lender will secure your loan against. However, if you fail to keep up with your repayments, they can seize these assets from you. Some lenders will allow you to use the assets of the business you are buying to secure your loan, but this is typically much harder to secure and can be expensive as a result.
Peer-to-peer
Peer-to-peer finance and crowdfunding are relatively modern financing options that deliver money via a number of investors. For peer-to-peer, you will typically request a specific amount of money at a set interest rate and a collection of lenders will deliver some or all of the loan. This is then paid back over a specified period, just like with a classic loan.
Crowdfunding goes even further, making it easy for a large number of investors and third-parties to invest small amounts in your business acquisition in exchange for a specified benefit. This could be discounts, free products or even early access to certain features or products. This can be a good choice for a media-friendly business acquisition.
Equity funding
Equity funding requires you to approach investors yourself and deliver a proposal that outlines the company you want to buy and why you’re certain you can make a success of it. If they agree that you’re fit for the job, you’ll be given the money you need in exchange for a share of the business you’re going to buy. Equity lenders generally invest a large amount of money in businesses and thus often expect significant returns for their money. Keep this in mind before you sign on the dotted line.
Your own money
The easiest way to fund your business acquisition is to use your own money. Whether you choose to use your savings, pension or equity from property you own, it’s possible to invest in your own business in full or in part, with a lender making up the remainder of the necessary cash. The major benefit of investing with your own money is that you are not tied to a lender, who will charge significant interest due to the risk involved with taking on and running a business. However, by investing your own money you’re risking your own capital, and have to be prepared to lose it should something go wrong. If you have faith in your acquisition, this could be the choice for you.
Need help finding some financing options? Click here to submit your financing option requests with Business Sale Report.
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