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Acquiring a business? Here are some financing options

On Behalf of | May 7, 2015 | Mergers and Acquisitions

There are many considerations that go into a business’ decision to acquire another. One of them is determining how the matter will be accomplished financially. In this post we will explore three ways that it may be done.

The first is with the assistance of a bank. Depending on the specific situation various forms of financing may be available. While in some cases a conventional approach works well some businesses could find that an SBA 7 acquisition loan is a better approach.

This type of loan is insured by the government but made by a private bank. Because its purpose is to provide loans when a business has minimal physical assets, businesses that do not have a lot in the way of assets could benefit from it. Typically, in this situation, a bank will provide 70 percent of the purchase price at closing while a business provides 20 percent down. In addition, a 10 percent carry from the seller could be orchestrated.

In other situations the seller could finance the transaction. Here again a buyer must pay a down payment but the remainder of the process would be orchestrated by the seller. The terms of the agreement are completely negotiable between the buyer and the seller.

In still other situations equipment financing and conventional bank loans could be available using assets as collateral. The proceeds from that arrangement could be forwarded to the seller.

In determining the best way to finance an acquisition a lawyer can help by looking at the totality of the circumstances and providing recommendations.