Lending Library

The 3 Cs – character, collateral, capacity – summarize the elements that a financier uses to underwrite a loan. This technique of assessing the client comprises both qualitative and quantitative measures.

Character

Character refers to the borrower’s reputation. The shareholders who are going to guarantee the loan and the management of the business will all come under scrutiny to determine if they are reliable and will repay the funds.

The lender will usually look at the credit history of the business owner to gauge honesty and reliability. Considerations may include:

• Whether or not they pay bills on time.
• Whether or not they’ve used credit before.
• How long they’ve been in business, and what positions they held before starting the business.
• How long they’ve lived at their respective addresses.

Lenders will also look at the credit scores of the owners of the business. This score is numeric, typically between 300 and 850, gleaned from the info in your credit report. High scorers generally have a lower risk. Each lender has its own standards, but many of them use credit scores to assist them in making their evaluations. It all depends on the level of risk they find suitable for a particular credit product.

Credit scores are weighted as follows: 35 percent payment history, 30 percent amount owed, 15 percent length of credit history, 10 percent new credit, and 10 percent types of credit in use. 

Collateral

Collateral is any asset used to secure the loan. Savings, real estate, inventory, accounts receivable, and equipment are all assets that could be used as collateral.

The lender asks for collateral because, in the event of insolvency, it can be sold or collected to generate funds to pay the loan. Since in the experience of most lenders asset classes such as prepaid amounts, goodwill, and investments will not raise any significant amounts, they are generally not considered for collateral.

If you’re using a property as collateral, its location and quality, and its adaptability are some of the features your future lender will look at.

Capacity

Most commercial credit officers refer to capacity as cash flow, and it represents the ability of the company to repay debt. Since a big down payment will reduce the risk of default, the lender will consider any capital the borrower puts into a potential investment. In short, the lender is looking at how much debt the borrower can comfortably handle. The following are usually requested from the borrower for the lender to evaluate cash flow/debt service:

• Business tax returns
• Historical financials, such as the balance sheet and profit & loss statements, interim financials, and/or projections
• Personal financial statements for each guarantor
• Rent rolls for leased property

If you’re considering a business loan, understanding the 3 C’s will give you a high-level understanding of what a potential lender will look for. Visit this post for more in-depth information on business loan requirements.

Even if you don’t know what ACH stands for, you’ve probably taken advantage of ACH transfers. If you’ve received your paycheck as direct deposit, sent a few bucks to a friend through Venmo, or paid your power bill online, you’ve used ACH.

ACH payments, which launched in 1974, have become such a common part of modern life that most people don’t even think about the mechanism that moves money in and out of their bank accounts.

For small businesses, understanding the basics of ACH is important on two fronts: you can make and receive payments through ACH, and ACH is a common method funders use to collect repayment of a business cash advance.

What are Automated Clearing House (ACH) transactions?

ACH is an acronym for “Automated Clearing House.” Essentially, it is the method banks use to send money between accounts electronically.

ACH is maintained, developed, and administered by the National Automated Clearing House Association (NACHA), a nonprofit funded by the financial companies that use ACH.

Used by millions of companies, the federal government, and all banks, the amount of money that moves through NACHA’s network is staggering. In 2019, some 24.7 billion payments were processed through the ACH network, a figure that has grown by more than 1 billion payments every year since 2014.

Not only are bill payments, salaries, and charitable gifts sent through ACH—Social Security, tax refunds, and other government benefits are deposited through ACH as well. Because of this, the federal government regulates the ACH network along with NACHA. NACHA estimated that the total value of all payments processed through ACH in 2019 was more than $55.8 trillion.

How do ACH payments work?  

While the result of an ACH transaction is similar to writing a check, the process is different.

ACH transactions are instructions to move money electronically from one bank account to another. These transactions can either be initiated by the person sending the money (credit) or the person receiving the money (debit). They are processed in batches and the transfer of funds takes place between banks.

Before banks are contacted, authorization must be provided by the people involved. To receive a direct deposit as an employee, for example, you must sign an agreement with your employer. To pay a bill through ACH, you must authorize the transaction first. Oftentimes, you agree to the transaction once, and then the direct deposits or automatic payments continue until you want them to stop.

In all ACH transactions, instructions are sent from an originating depository financial institution (ODFI) to a receiving depository financial institution (RDFI), which are usually both banks—sometimes even the same bank. The instructions from the ODFI can be to either request or deliver money.

How does ACH work for employee direct deposits?

If an employee agrees to be paid through direct deposit, the employer’s bank is the ODFI in this instance. The employer shows the ODFI that the employee approved the transaction. The ODFI verifies this information and submits it to the ACH network. The ACH network routes the transaction to the RDFI of the employee. The RDFI makes the money available by crediting it to the employee’s bank account; at the same time, the ODFI is debiting money out of the employer’s bank account. Finally, the ACH network settles the transaction with both banks.  

The process sounds complicated, but because it is automated and electronic, it usually only takes 1 to 2 business days.

How to pay employees using ACH.

To set up direct deposit for your employees, you should talk to your bank (i.e., the ODFI in this case) about what information they need and how much it will cost you.

Interested employees will agree to direct deposit and provide you with a bank account and routing numbers. You then provide this information to the ODFI.

When payday comes, you submit your payment files to the ODFI. The ODFI then submits the transaction to the ACH network, which results in your employees receiving funds in their accounts soon after.

Depending on your agreement with your bank, you will be charged a flat fee or a percentage based on the amount moved through the ACH network.

How does ACH work for accepting payments?

The system is the reverse when a person is paying a company like a consumer buying a product through Square or paying an insurance bill online. The ODFI would be the insurance company’s bank. The money would flow from the RDFI to the ODFI.

How to accept ACH payments.

To accept electronic payments for your goods or services, talk to your bank. Banks, credit card processors, and merchant account providers all offer various ACH services that vary in cost.

Especially if your operation is very small, new, or both, a popular way to accept ACH payments is Square, Venmo, or other mobile payment processors. Many businesses opt for these new payment processors because the fees are easy to understand, and it allows them to provide for customers who want to pay with plastic.

How funders use ACH payments.

Many funders who offer a business cash advance will utilize ACH to receive repayment on the advance. This is why you may occasionally hear this type of funding referred to as an “ACH loan.” 

A business cash advance provides access to money upfront based on expected future revenue. The funder will then set up an automatic withdrawal via ACH of a preset amount on a daily or weekly basis.

Difference between ACH payments and wire transfers.

Wire transfers are another common way to send money between bank accounts, but these transactions are different from ACH payments in several ways. ACH payments only work within the United States, while wire transfers can be sent around the world. Wire transfers are immediate, which can be beneficial but has also made this method of payment popular with fraudsters. The cost of wiring money is typically quite high, too, compared with the relatively slight cost of ACH transfers.

You may also hear about Electronic Fund Transfers (EFTs), a blanket term that encompasses ACH payments, wire transfers, and pretty much any time money is exchanged electronically. All transactions that require a PIN code are EFT, too, including using an ATM or paying with a debit card at a grocery store.

Why use ACH?

The benefits of ACH are pretty clear: it’s fast, accurate, and relatively cheap. Because it is utilized by the US government and all the major banks, ACH is highly regulated and secure. 

The fees range depending on your bank and how much money you process through ACH, but they are generally less expensive than what credit card processors charge. The low fees and overall convenience are major reasons why many businesses turn to ACH.

Additionally, ACH will make a huge dent in the amount of paper your business has to handle. Maintaining a check registry has long been a headache for most small business owners, while the automation and simplicity of ACH make payments much more streamlined. And no one has ever lost an ACH payment in the mail.

The drawbacks of ACH

By automating your payroll with ACH or enrolling in repeating payments, you may feel like you have less control of your cash outflows.

As a practice, you should always pay close attention to your bank accounts, even if you use ACH often. Automated payments can overdraw your account. You might also continue paying for services that you stop using if the payments are automatic and you stop paying attention.

Keep in mind that ACH payments can only happen between 2 bank accounts based in the U.S.

You must also consider the costs involved with ACH, even though they are typically lower than most other electronic payment options.

How much will it cost?

The cost of using ACH transfers will depend on the financial institution, how much money you are transferring, and how regularly you transfer money. Banks may also charge rates that are different from mobile payment processors like Square, so you should do some research on what options are available to you.

Many ACH processors will charge a flat fee on every transaction, often between $0.25 and $0.75, although some processors charge as much as $1.50 per transaction. Other companies will charge a percentage on each transaction, usually between 0.5% and 1.5%.

ACH transfer fees are almost always lower than credit card processing fees, which can range from 1.5% to 4% on each transaction.

Is ACH secure?

Because it is regulated by federal law, ACH transfers are one of the most secure ways to move money between bank accounts. To prevent fraud, NACHA requires a significant amount of identifying information from every person, business, and bank involved in the ACH process.

With such safety, speed, and convenience, it makes sense that so many small businesses adopt ACH processing into their banking practices.

The U.S. Small Business Administration offers a few different real estate loans to help business owners purchase, renovate, and build properties that support their companies. There are two primary SBA commercial real estate loans to choose from: the 7(a) loan and the 504 loan. Each one is designed for different purposes and has its own terms and eligibility requirements. Read about both options so you can pick the right one for your small business. 

SBA 7(a) loans.

SBA 7(a) loans are a versatile source of funding for small business owners that can be used for real estate. Here's how they work.

Eligibility

For-profit companies that meet the SBA's definition of "small business" may apply for a 7(a) loan. In addition to demonstrating the need for financing, the owners must be financially invested in their companies and have tapped into other resources before applying—including their personal assets.

When using an SBA 7(a) loan for real estate, you must meet the following occupancy requirements, depending on the loan purpose:

• Existing real estate purchase: Property must be at least 51% owner-occupied
• New real estate construction: Property must be at least 60% owner-occupied

Use of loan funds.

SBA 7(a) loans can be used for a variety of reasons, such as working capital, inventory, and debt refinancing. For real estate-related financing, you can apply to use the funds for any of the following:

• Purchasing or leasing land
• Improving street or parking
• Purchasing, building, or improving a building

Repayment terms

Small businesses may borrow up to $5 million with a 7(a) loan, with payments spread out over up to 25 years. Interest rates are based on the current prime rate, plus an additional percentage ranging from 2.75% to 4.75%. You'll also need to make a down payment, which is set by your lender in your loan offer. This ensures you have a vested interest in keeping up with your loan payments over time.

SBA 504 loans.

504 loans from the SBA are designed to help with large asset purchases, including real estate. It has a few key differences when compared to a 7(a) loan.

Eligibility

Small businesses can apply for the 504 loan if the business has a tangible net worth of under $15 million and has had an average net income of under $5 million (after federal taxes) for the previous two years.

The 504 loan comes with the same owner-occupancy requirements as the 7(a) loan: existing real estate purchases must be at least 51% owner-occupied, while new construction must be at least 60% owner-occupied. 

Use of loan funds.

504 loans can be used for purchases, construction, or improvement projects. Eligible projects include:

• Purchasing existing buildings or land
• Purchasing or building new facilities
• Improving or modernizing existing facilities, land, streets, utilities, parking lots, and landscaping

Repayment terms

With a 504 loan, you can borrow up to $5 million for most purchases, or up to $5.5 million for eligible energy efficient or manufacturing projects. These real estate loans come with a 25-year repayment term. Interest rates are tied to the five-year and 10-year U.S. Treasury issues, with a pegged rate above the current rate. 

The business owner is typically responsible for 10% of the costs as a down payment. Another 40% is borrowed from a Certified Development Company (CDC), and the remaining 50% is borrowed from a bank or credit union.

SBA 7(a) vs. 504 loans.

Both the SBA 7(a) and 504 loans can be used for real estate, however each has its own different perks and drawbacks. While the SBA 7(a) program offers broader versatility in how funds can be utilized without necessitating specific job creation or community development criteria, the SBA 504 loan program may provide advantages such as the possibility for greater loan amounts and more favorable interest rates.

See a full comparison between the two loan types here.

Which SBA real estate loan option is right for your business?

Choosing between the SBA 7(a) and 504 loan programs for real estate purposes depends on several factors unique to your business needs and objectives:

• Type of real estate purchase: If you're looking to purchase or refinance owner-occupied commercial property, the 504 loan offers benefits specifically tailored for real estate projects. However, if the property acquisition is part of a broader business financing need, the 7(a) might be more appropriate.
• Project size and scope: For larger projects that significantly contribute to local economic development, the 504 program is designed to support major investments in real estate and equipment. Smaller or more general real estate needs may be better suited to the 7(a) program.
• Loan terms and interest rates: The 504 loan program typically offers lower interest rates and longer repayment terms, especially for real estate purchases, making it a cost-effective option for substantial long-term investments. Consider your business's capacity for repayment when choosing.
• Down payment requirements: The down payment for a 504 loan is usually lower than that of the 7(a), making it more accessible for small businesses with limited upfront capital but solid growth potential.
• Economic development and job creation: If your project will contribute to job creation or meet specific public policy goals, the 504 loan provides not just funding but also potential community development benefits, which could influence your decision.

Evaluating your business's financial needs, growth projections, and the specific requirements of each loan program will help you make an informed decision about which SBA real estate loan option is right for you.

How to qualify for an SBA real estate loan.

Qualifying for an SBA real estate loan involves several key steps and criteria that potential borrowers must meet to be eligible for financing. Whether you're considering a 7(a) or a 504 loan, the basic qualifications include:

• Business size and type: Your business must meet the SBA's size standards, which vary by industry. Generally, it should be a for-profit enterprise and operate within the United States.
• Creditworthiness: Applicants should have good credit scores and a history of financial responsibility, both personally and in business. The SBA and lenders will review your credit history, including your business credit report and personal credit score.
• Down payment: While down payment requirements can be more favorable for SBA loans compared to conventional loans, borrowers should be prepared to make a down payment. The specific amount varies, with 504 loans typically requiring at least 10%.
• Operator requirement: For most real estate loans, the SBA requires that the business occupies at least 51% of the property for existing buildings or 60% for new constructions.
• Financial statements: Applicants must provide comprehensive financial statements, demonstrating the business's profitability and sustainability. This includes balance sheets, income statements, and cash flow projections.
• Business plan: A detailed business plan must be submitted, outlining the business's objectives, market analysis, management team, and how the loan will be used to support growth and stability.
• Collateral: Although the SBA offers a guaranty on the loan, borrowers are still required to provide collateral, which can include business assets, real estate, and personal guarantees.

Meeting these qualifications does not guarantee loan approval, but it is the first step in the application process. It's essential to work closely with an SBA-approved lender or a Certified Development Company (CDC) for 504 loans, who can provide guidance tailored to your business's unique needs and help you prepare a strong loan application.

How to apply for an SBA real estate loan.

Applying for an SBA real estate loan is a comprehensive process that requires careful planning and preparation. Here’s a step-by-step guide to navigating the application process effectively:

1. Determine eligibility: Before applying, ensure your business meets the SBA’s eligibility requirements for either the 7(a) or 504 loan program. This includes size standards, the nature of the business, and creditworthiness.
2. Choose the right program: Based on your business needs, decide whether the 7(a) or 504 loan program is more suitable for your real estate project. Consider factors such as the type of real estate, project size, and interest rates.
3. Find an SBA-approved lender or CDC: For a 7(a) loan, you’ll need to work with an SBA-approved lender. For a 504 loan, you’ll partner with a Certified Development Company (CDC) alongside a third-party lender. Consult the SBA’s website or contact your local SBA office to find approved partners.
4. Prepare your documentation: Gather all required documents, including financial statements, a business plan, ownership and affiliate business information, and any necessary legal documents related to your business and the real estate transaction.
5. Complete the application: Fill out the loan application forms provided by your lender or CDC. Make sure to complete every section accurately to avoid delays in processing.
6. Undergo a loan review: After you submit your application, your lender or CDC will review your documents and may request additional information. This review process will assess your project's viability, creditworthiness, and adherence to SBA requirements.
7. Loan approval: If your application is successful, you will receive a loan approval decision from your lender or CDC. This phase includes discussions on terms, rates, and any closing conditions that must be met.
8. Closing: Once all conditions for the loan are fulfilled and approved, you will proceed to closing, where the loan documents are signed, and the funds become available for use according to the terms of the loan.

Remember, each SBA real estate loan application is unique, and the process may vary slightly depending on the lender, CDC, and specific circumstances of your business and real estate project. It’s advisable to seek guidance from financial advisors or consultants experienced with SBA loans to ensure a smooth application process.

Learn more about how SBA loans can help you grow your business and increase your efficiency.

If you can’t beat them, buy them. And even if you can beat them, maybe still buy them. 

When it comes to the top dogs, we’ve seen successful competitor acquisitions like Facebook buying WhatsApp, T-Mobile acquiring Sprint, and Amazon purchasing Zappos. But we’ve also seen other not-so-successful competitor acquisitions like when Sprint bought Nextel or when Google acquired Motorola.

When the giants fall, it makes a big bang. However, most of these behemoth companies are still alive and kicking.

For small businesses, the margin of error is much thinner. An acquisition flop doesn’t usually end in a setback—it ends in layoffs and bankruptcy.

But if you get it right, wow, can your small business hit the jackpot. You could score customers, increase revenue, accelerate growth, win top-notch employees, and ultimately secure a more concrete piece of the market.

If you’re considering buying out a competitor, a few critical questions have likely come to your mind. Should you buy out a competitor or crush them instead? If you decide to buy them out, how will you finance the acquisition? What will you need to do to make sure the acquisition ends up a major success rather than an epic fail?

All great questions, and that’s why we put together this definitive guide to buying out a competitor. Read through this guide, and you’ll find all the answers you need to make the best acquisition decisions for your business.

Why should you buy a competing company?

Any merger or acquisition is risky—so why should any business gamble with it?

Well, with great risk comes great reward. Here are a few reasons you might want to buy out a competitor:

• Reduce competition. With the competitor gone, your customers have one less alternative. You won’t have to keep lowering your product prices or paying more in pay-per-click (PPC) bidding wars. You may be able to raise prices for your products (without upsetting customers), or the economies of scale might reduce costs and allow you to lower prices while maintaining a profit.
• Acquire a competitive advantage. If your competitor has intellectual property, digital marketing leverage, or prime real estate that gives them an advantage, you could buy the company and all the assets. This way, you won’t have to use employees and money to build the technology yourself, compete for digital prowess, or fight for locations.
• Accelerate growth. Organic business growth can be painfully slow. By acquiring a company, you could double your revenue, customer base, and team overnight. 
• Grow your team. If your competitor has a group of stellar engineers or salespeople, acquiring their business could get the dream team on your side (if they decide to stay, that is).
• Expand your customer base. Acquiring your competitor gives you instant access to their customer base. If your product is a complement, then there are tremendous cross-sell and up-sell opportunities.

The disadvantages and challenges of a competitor buyout.

Buying out your competitor isn’t all unicorns and rainbows, though. There can be significant challenges and downsides.

Before you rush into anything, be aware of these potential backlashes:

• Loss of key employees. Founders, leaders, and other tenured employees may use a buyout as a catalyst for an exit. You’ll need to have worst-case-scenario plans and resources ready to replace them. The acquired business likely heavily relied on these key players—you can’t just go with the flow if they leave.
• Increased debt. Buying out a competitor isn’t cheap. You’ll likely need to borrow money (sometimes a lot of it), and that will affect your profitability and capacity to invest in other areas of your business.
• Integration conflicts. Integration struggles are real. Some integrations will come Day 1, and others will roll out slowly over months and years. Keep in mind everything that will be impacted: software, personnel, salaries, benefits, processes, offices, titles, culture, and the list goes on. 
• Broken processes. A company’s go-to-market strategy or product road-mapping process may work for their business and employees but not work somewhere else. If you buy out a competitor, make changes very slowly. Forcing a new acquisition to operate exactly as the parent company could break what they’ve built. If it ain’t broke, do you really need to fix it?

None of these consequences should stop you from buying out your competitor, but they are factors you should keep in mind.

When to acquire a competitor.

Deciding to acquire a competitor is a significant strategic move that can redefine your company's future. It's a decision that should be based on a combination of timing, financial stability, and market position.

Timing

Timing is crucial in the acquisition process because it can significantly impact both the cost of the acquisition and its ultimate success. Engaging in acquisition when the market is favorable, such as during an economic downturn when company valuations are lower, can allow for a more cost-effective expansion. Conversely, acquiring a competitor when your company is experiencing robust growth and market share can solidify this leading position, preventing competitors from gaining ground. Additionally, timing can influence the integration process, where market stability can offer a smoother transition and better acceptance from customers and stakeholders.

Financial stability

Financial stability is crucial when acquiring a competitor because it ensures that the acquisition does not jeopardize the acquiring company's existing operations and financial health. A strong financial foundation allows a company to absorb the costs associated with the acquisition, such as the purchase price, integration expenses, and any unforeseen financial challenges that may arise. It also positions the company to leverage additional resources for growth opportunities and to manage the debts more effectively, maintaining investor confidence and market stability throughout the transition period.

Market position

Market position holds critical importance when acquiring a competitor, acting as a litmus test for the potential success of the merger. A strong market position can afford the acquiring company greater leverage in the integration process, enabling it to maximize the benefits of the acquisition, such as expanding its customer base, enhancing product or service offerings, and eliminating a competitive threat. Furthermore, a company with a solid market position is better equipped to weather the integration challenges, such as brand cohesion and customer retention, ensuring that the acquisition contributes positively to its long-term strategic goals.

Top 5 questions to ask before buying out a competitor.

Buying out your competitor could establish you as the top dog, or it could send your business spiraling out of control.

When the timing is right, the most critical factor is not if you should make an acquisition, it’s who you should acquire. Just like when you open a restaurant menu, you don’t want to start salivating over the first thing you see. Especially if you’re at Cheesecake Factory—you have a whole book to read first!

If your industry and market resemble a Cheesecake Factory menu, you’ll want to take your time and consider the options. When dining, there are usually good, better, and best possibilities. When acquiring a competitor, there’s likely a good, bad, worse, and worst option.

To make sure you make the right decision, weigh these 5 critical factors first:

1. What do the financials say?

We’re not just talking about current revenue and expenses. Dig deep into the numbers.

Numbers help you detach emotionally from the acquisition to take a more objective approach. Don’t fear the numbers—embrace them!

Your competitor may be boasting some impressive figures, but a more in-depth look into the financials might reveal that numbers are trending down in the past few years. Or maybe you notice the business is profitable, but expenses are accelerating faster than revenue growth.

You’ll also want to examine the cost of the acquisition. Will your competitor’s revenue offset the price of buying them out? Do they currently have any expensive debts? How long will it take to recoup the cost and start seeing a profit?

Finally, you’ll want to make sure the numbers the business provides are legit. “I’ve lost a lot of money on acquisitions in the past by not making sure that their books, sales, and other systems match up,” said John Rampton, founder of Due. “Have a firm go in and audit everything. Then audit it yourself. Any company that doesn’t allow you to take a look at everything and take the engine apart isn’t worth your time.”

2. How will the customers react? 

Imagine if Pepsi bought Coca-Cola or if Microsoft acquired Apple. How do you think legacy customers would respond? Not well. Not well at all.

Even if all the numbers add up, you’ll still need to consider the emotional impact on customers and employees. Direct competitors, like Nike and Adidas, will have a more difficult time converting customers and employees. Indirect competitors, like YouTube and Vine, would face less of a challenge.

“I like to think about my company and our acquisitions as many chapters in a detailed overarching narrative,” said Rob Fulton, founder of Exponential Black Labs. “Does it make sense to the customer, and do our products and acquisitions flow from one chapter to the next?”

Make sure your competitor’s customers and your customers will be on board with the acquisition. The last thing you want to do is add jet fuel to another competitor’s marketing fire.

3. Do the company culture and values fit?

Typically, when companies look at acquisitions, all they think about is money, money, money. But meshable culture has financial value, too.

Take BerylHealth, for example. A private equity firm tried to acquire BerylHealth for 9x its EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization). CEO Paul Spiegelman declined the deal, but he left with a firm resolve to improve his company’s culture. His focus and investment in culture paid off—2 years later, a company offered 22x the EBITDA to acquire BerylHealth.

“We were able to sell our culture,” said Spiegelman. “They weren’t buying us just for the business we had or the platform we would build for them; they honestly believed in what we had built.”

When you look to acquire a competitor, make sure you’ll be able to integrate the 2 company cultures. If it’s a sizable acquisition, you won’t get away with forcing the acquired employees to fit your mold—you’ll need to reevaluate and realign to make sure the culture fits the new combined business.

Be thoughtful and intentional with this process. “Most leaders want to complete the integration process as quickly as possible in order to reap the financial benefits of the transaction,” said Debbie Shotwell, Chief People Officer at Saba. “This can come back to bite them. I believe in taking a step back, planning, and taking your time with your integration strategy.”

4. Why is the company willing to sell?

If the owner is experiencing a major life event (illness, relocation, retirement, divorce, etc.), then it makes sense to sell the business. If that’s not the case, why are they willing to sell their business?

There are right and wrong answers.

If the company believes in the combined vision and future of your business, then that’s a good reason. If things are slipping and they’re looking to abandon ship, that’s a scary reason.

You need to know precisely why the business is willing to be acquired so you can avoid any unpleasant surprises down the road.

5. What is the market overlap?

You want to acquire a competitor with as little overlap as possible. Your competitor’s clients chose an alternative over you once already, and they may decide to go with another company instead of sticking with you post-acquisition.The best target for an acquisition is a competitor in nearby markets instead of the same market. This play allows you to expand your market rather than force your product or service on customers.

How to finance a small business acquisition.

It’s (almost) never a good idea to buy out a competitor with cash. Business acquisitions are a pricey business. You don’t want all your working capital thrown at the investment, especially after a buy out that will require additional integration costs. 

So, where will you find the money for the acquisition? You have a few options:

• Your business’s capital. Like we said before, it’s not a great idea unless you have mountains of cash sitting idly in the bank.
• Seller financing. The business you’re acquiring provides you with a loan that you pay back over time.
• Small business loan. You find a business acquisition loan to finance the buyout.
• Leveraged buyout. You leverage the new business’s assets to help finance the acquisition, but you’ll usually need to pair this with a loan or seller financing.

As America’s leading marketplace for small business loans, we’re a tad biased, but we believe a business acquisition loan should be one of your top financing considerations.

Using a business acquisition loan.

A business acquisition loan is pretty straightforward—it helps you buy an existing business or franchise.

No stacks of cash, crazy-rich uncles, or convoluted financing schemes required. There isn’t a “business acquisition loan,” per se, but there are small business loan products that work perfectly for acquiring businesses. Here are the top 4 options.

1. Business term loan.

Business term loans are the classic financing you think about when you hear the word “loan.” You get a lump sum of cash that you pay back with predictable monthly payments, usually at a fixed term and a fixed interest rate.

2. SBA 7(a) loan.

With an SBA 7(a) loan, you could get up to $5 million in financing for whatever your heart acquires. Contrary to the name, the government (Small Business Administration) does not actually lend the money—they just guarantee all or a portion of the loan to decrease the risk for lenders.

3. Startup loan

If an opportunity to buy out a competitor arises but you don’t have years of business experience under your belt, a startup loan may be your best bet. They’re not too different from term loans, but they’re offered by lenders who are willing to accept borrowers with lower revenue, credit scores, and years in business.

4. Equipment financing

In some situations, the purchase price of the business you’re acquiring might be majorly determined by the value of the equipment you’re purchasing. When that’s the case, equipment financing should be a top consideration. Plus, you get to use the equipment as collateral for the loan, so there’s less risk for you.Fortunately, you don’t have to go from bank to bank inquiring about all these loans to find the best deal. Just use our free 15-minute application, and our nifty sci-fi algorithms will find you the perfect business acquisition loan with the perfect lender. Simple, quick, free—the way it should be.

How long does it take to buy out a competitor?

The timeline for acquiring a competitor can vary significantly based on a range of factors, including the size and complexity of the deal, regulatory hurdles, and the negotiation process. Generally, smaller acquisitions can be completed within a few months, while larger, more complex deals may take a year or more to finalize.

The initial stages of the process involve preliminary discussions and due diligence, which is critical for assessing the target company's financial health, legal standing, and operational fit. Following this, the negotiation of terms and the drafting of contracts can span several weeks to several months, depending on the parties' agreement speed and the deal's complexity. Regulatory approvals, a crucial step, can also extend the timeline, especially in industries that are heavily regulated. Throughout this period, maintaining open communication and a clear strategic vision is essential for both parties to facilitate a smooth transition and integration post-acquisition.

Tips to make your business acquisition a success.

Despite being long and painful, the actual transaction of buying out your competitor is just the first step in a successful business acquisition. That’s not to say you can’t pop the champagne and enjoy the victory (you earned it!)—just know the hardest part comes next.

Once the bubbly starts to fizzle, it’s time to get back to work. To make sure your business acquisition doesn’t end up like poor ol’ Motorola (who?), follow these post-acquisition tips:

• Have capital on hand. Don’t drain all your money on the acquisition—you’ll need capital for everything that comes next: integration, onboarding, travel, rebranding, legal fees, and so much more. If you don’t have one yet, go ahead and secure a business line of credit to deal with additional expenses and any surprises. 
• Communicate, communicate, communicate. When it comes to acquisitions, there’s no such thing as too much communication. Make sure employees, customers, and stakeholders are all on the same page. Get these communications prepared, reviewed, and revised in advance so you’re ready to go on Day 1. Take the initiative and provide answers to predicted FAQs as soon as possible.
• Integrate slowly. Don’t rush into forging one team immediately. Take things slow. Let the teams and businesses continue to operate independently at first. Then, begin to roll out changes gradually. Sometimes, complete integration isn’t necessary—don’t force anything. You acquired your competitor because they’re doing something right—don’t break it.
• Study the culture. After the acquisition, take some time to analyze the culture of the business you bought. What’s going right? What’s going wrong? “It’s important to understand and respect that regulations and processes are in place because they have led to success in the past,” said Glen Willard, franchise owner of River Street Sweets. “Develop a plan that includes how your suggested changes or improvements will benefit the business as a whole, and take it to the top.”

Ready to buy out your competitor?

Now that you know what to expect from a business acquisition, how are you feeling? Are you confident about your decision to acquire a competitor?

If not, don’t worry. You’ll never be 100% sure of the outcome. That’s the life of a small business owner—always weighing risk and reward.

While you can’t guarantee a flawless acquisition, you can do everything in your power to set your business up for success. Take your time and do it right—a top-notch competitor acquisition could change the course of your small business forever.

It’s important to have people in our lives who we can turn to for advice. Examples include business mentors, trusted friends, religious leaders, therapists, or family members. Sometimes we already know what we want to do and are just looking for confirmation. Other times, we are clueless and legitimately need direction.

When facing 2 diametrically opposed options, the guidance of others becomes even more crucial. It’s reminiscent of the classic song from The Clash:

Should I stay or should I go now?

Should I stay or should I go now?

If I go there will be trouble

And if I stay it will be double

So ya gotta let me know

Should I cool it or should I blow?

Should I stay or should I go now?

If I go there will be trouble

And if I stay it will be double

So ya gotta let me know

Should I stay or should I go?

We often find ourselves in similar situations. Should we keep our day job or quit? Should we discontinue a struggling product or try to rescue it? Should we expand our office space or work with what we already have?

The situation is heightened for entrepreneurs because of the level of personal investment. You have spent a lot of money and dedicated countless hours to your passion. So you want to make sure you’re making the right decisions and protecting everything that you’ve already sacrificed to get where you are today. And that gets tricky when you get conflicting advice.

“Though it’s known that you shouldn’t listen to all criticism and advice you receive as an entrepreneur, how do you respond when your trusted advocates, mentors, and investors give you conflicting advice?” asks small business expert Tori Utley. “It can put you in a difficult place as an entrepreneur with much to question and consider. It’s helpful to have mentors that will help you navigate the uncertainties of startup and professional life while giving you meaningful insight when you need it most. But when insights from equally qualified, equally invested, and equally credible people start to conflict, it’s you, the entrepreneur, who must ultimately make a decision.”

How to handle conflicting feedback.

Trust us—there will be crucial moments in your business career where the advice you receive couldn’t be more different. Here are some tips for managing the contradictions so you can find the best possible way to move forward:

Take time to reflect.

OK, you’ve received feedback that seems to conflict. Start by allowing time to process the various insights. You might even realize that you’ve misinterpreted some of the feedback and that it is more complementary than you originally thought.

Get a third, fourth, fifth, and sixth opinion.

The funny thing about a stalemate is that it can quickly turn into a landslide victory. Suppose you talk to 2 trusted advisors and get differing opinions. The situation might look dire, but if you talked to 3 other folks and they all agreed with 1 of the original opinions, you could take this near-total consensus as the ultimate green light.

Test the advice.

When possible, it can be helpful to test the advice you get. Let’s say that 1 adviser tells you to go all-in on social ads for your product launch, while another adviser says that display ads are the only worthwhile option. Rather than toss 1 of these advertising tactics, do a series of small tests and find the winner.

Look for the reasons behind the advice.

There will be times when you might be surprised by a differing opinion from 1 of your mentors or colleagues. Take a step back and consider why they feel the way they do. A person’s background and circumstances shape their views, and you might realize that the advice is less relevant to you in this particular situation than advice from another source.

Stay true to yourself.

Your gut has gotten you this far, so don’t tune it out now. It’s essential that you gather insights from respected sources, then follow through on the action that feels best. Nobody on earth understands your business better than you, so it stands to reason that you should be the ultimate decision-maker.

Embracing the beauty of conflicting feedback.

It can be understandably frustrating to get contradictions when all you want is a clear sign pointing you in the best direction. But it’s important to have differing opinions in life because they introduce you to new ways of thinking and challenge your assumptions.

Your small business needs insights to thrive, not an echo chamber. So be sure to always seek out feedback and opinions from your team of trusted advisors. As long as you use proper evaluation strategies and then follow your gut, you’ll be able to lead your business to a brighter tomorrow.

We have around 773,000 franchise establishments in this country—but what’s the draw for small business owners?

Let’s look at it this way: say, for instance, that you’re a novice entrepreneur. Would you rather start a business from scratch or place your bets on an established operation? Many people just starting out would choose the latter. 

But franchises aren’t only for budding entrepreneurs. They’re for everyone: people looking to make more money, established entrepreneurs who want another source of income, or retirees who want to contribute to the workforce. Anyone can benefit from all that franchises have to offer. 

Advantages of buying a franchise.

Building a business from the ground up takes hard work and time. You have to set up everything yourself—your own processes, protocols, and procedures. You’re in charge of everything, and that comes with great responsibility: not only do you own every win, you also own every loss. And with this from-scratch model comes many hours of trial and error. 

A franchise opportunity gives you all the advantages of a business without having to start it yourself. You get the chance to utilize all the hard work and established processes that someone else has developed, which minimizes your risk. And the franchise’s whole package gets handed to you: a proven business model, brand recognition, a stream of customers, and continual support. 

But every franchise is not the same. If you’re considering buying a franchise, here’s what you need to look for in an establishment:

• Industry growth potential. Look beyond the current state of the industry and examine future projections. Will the industry continue to grow or remain stagnant?
• Strong support system. What type of ongoing support—if any—does the franchise provide?
• Good management. Make sure the franchise has the right strategies, plans, systems, and processes in place. 
• Adequate earnings. Consider if the projected income you will receive matches what you want or need. 
• Satisfied franchisees. Talk to other franchise owners to gauge their level of satisfaction. 

Best franchises for under $10k.

Want to be a business owner but don’t want to break the bank? Read on for our top franchise picks that you can acquire for $10k or less. 

1. Momleta

This franchise is a great opportunity for fitness-passionate moms. If you love staying in shape and want to help other moms get in shape, Momleta may be the franchise for you. 

Unlike other sports franchises, Momleta doesn’t require a startup investment of well over $10,000—initial fees fall between $4,000–$7,000. This franchise is also under the Baby Boot Camp brand and includes several programs and fitness classes. 

2. Social Owl

If you enjoy working from home and would love to help small business owners succeed, you could consider opening a SocialOwl franchise. SocialOwl makes it possible to start your own social media marketing business. This franchise is unique because the model includes a SaaS (software as a service) starter pack. 

With this franchise, you’d work with local businesses to sell social media packages. Access to training, marketing materials, and your own branded website are all included for low investment fees of $179–$249 per month. Average ROI is also worth noting: according to SocialOwl, you can make around $300 a month per client. 

3. Building Stars

A Building Stars franchise will give you all the tools you need to build a successful cleaning business. They also offer training and ongoing support programs to help you sustain your franchise. 

Their focus is on commercial cleaning solutions for office buildings—a $117 billion industry that’s continuing to grow because of the COVID-19 pandemic. The total investment required for this opportunity ranges from $2,245–$8,295. 

4. Jazzercise

Another great opportunity for fitness buffs is Jazzercise. Their program makes working out fun and exciting: their dance-based, full-body routines will get you moving to popular music and help you whip others into shape. 

After applying to join the program, you’ll receive training over a 5-week period. At that point, you can choose to become a Jazzercise instructor or a small business owner. The total investment to own your own franchise falls between $2,415 and $3,200. 

5. Complete Weddings and Events

Complete Weddings and Events is the largest event-services provider in the United States. If you enjoy organizing events, planning, and making schedules, this may be the franchise for you. 

It’s also worth noting that the wedding industry took a dip due to the pandemic. Pre-COVID, the industry generated $72 billion per year. But since then, it’s taken a tremendous hit—in 2021, it’s expected to generate $51.2 billion.

Now that the country is reopening, however, people will be planning more in-person weddings and other celebrations—and they’ll no doubt need the help of professional event planners. 

Complete Weddings and Events will give you all the training and ongoing support you need. They’ll also teach you how to price your services and hire other professionals, like photographers, DJs, and videographers. Startup costs are around $10,000. 

Franchises under $10k in 2024.

If you want the freedom of entrepreneurship but cringe when you think of everything that goes along with it—like building a business from scratch, growing your company, and marketing your brand—then you’ll probably benefit from a franchise. And if you can get in for $10k or less, your risk decreases even more. 

Before you buy a franchise, weigh all the pros and cons and consider if it’s worth it for you. $10k may not seem like a lot of money to some, but it’s unquestionably a substantial amount. And you want to maximize your investment regardless of how much it costs. 

When you choose a franchise, ensure that your chosen franchise model is a stable, quality organization who will offer you ongoing support—not an establishment that only reaches out to you when it’s time to collect your franchise fees. 

$10k may not be enough to buy into one of the most popular franchises, like McDonald's, Great Clips, or Anytime Fitness. But it’s enough to purchase a good franchise that will teach you, train you, and bring you a positive return on your investment. 

Balance sheets make up the core of bookkeeping. These financial records track every credit or debit for your business, noting them under assets and liabilities. Assets refer to anything that is useful or has value to the business (like cash on hand or inventory). Conversely, liabilities refer to anything that will cost the business money in the long or short term.

Tracking liabilities is important for any business that wants a clear picture of its cash flow and company value. This guide will discuss what liabilities are in greater detail and how you can record them. 

What’s the difference between a liability and an expense?

A common mistake in bookkeeping is that your liabilities are the same as your costs—but this isn’t the case. Liabilities are used to acquire assets for your business. Meanwhile, expenses are payments for items or services without physical value. 

Consider the difference between a business mortgage payment and an electric bill. Paying the mortgage each month increases your asset: equity on the building or land. However, an electric bill merely covers the service of electricity used within that period. You don’t get to keep the electricity or potentially resell it. 

In double-entry bookkeeping, each liability is also listed as an asset so the business owner can track the value of the business. Their business equity can grow by paying liabilities. 

Short-term and long-term liabilities.

Along with sorting expenses and liabilities on your balance sheet, you will need to differentiate between long- and short-term liabilities. Simply put, long-term liabilities are obligations that the business expects will continue for over a year. These can include loans and mortgages. 

Short-term liabilities (also called current liabilities) are likely to get paid off within a year. They cover payroll tax and sales tax payable, along with the monthly payments you make on loans and mortgages. 

Documenting both short-term and long-term liabilities can help business owners to better understand their equity growth over the course of a year. 

What are some examples of liabilities in bookkeeping? 

Businesses have liabilities in all shapes and sizes. There are long-term liabilities that companies keep on their records for years, as well as short-term liabilities for new equipment. A few examples of liabilities include:

• Wages payable: The amount of accrued income that employees have earned. If a company pays its employees every 2 weeks, this section will change dramatically throughout the month. 
• Interest payable: When you buy an asset and owe interest on your payments, you record the outstanding balance as a liability. 
• Accounts payable: Unpaid invoices that have been submitted to your business. 
• Dividends payable: The amount owed to shareholders who have stock in the company. This often includes a percentage of a business’s profits each year or quarter.   

Every business will have liabilities in some form. Even if you operate as a sole proprietor from your home, you will likely have costs related to equipment, materials, and a mortgage or rent. If you can build up good habits for tracking these costs on a small scale, you can grow your business without getting overwhelmed by your bookkeeping. 

Is it time for a career change? Do you have a unique skill set in a niche field but want to expand your knowledge into something new? 

Many entrepreneurs started out in their fields and saw opportunities outside of the norm. They made dramatic changes in their career plans and took risks to enter new and lucrative markets. This could be you. 

Below are a few unique business ideas that rise to customer demand. Get inspired by the entrepreneurs who turned their off-the-wall ideas into big business, and see if any of these concepts would work for you.

1. Dog event planning.

Is your dog the apple of your eye? Do you want to help others celebrate their pooches and spoil them in the most creative ways possible? Consider getting into canine event planning. 

A few years ago, event planner Niki Sohrabkani took on a client who asked her to throw a party for 20 dogs and their pet parents. Sohrabkani had such a good time that she developed her own business to throw parties for pets. Today, the party planner hosts more than 30 events a year, from “pooch pool pawties” to “Howl-o-ween bashes.” 

Sohrabkani really leans into the puppy theme, catering for humans as well as the furry attendees. She always brings some “pawsecco” and leads games like “musical paws.” 

The parties are popular with high-end clientele who want to spoil their pets. Sohrabkani’s attention to detail means her events get featured across Instagram, attracting additional clients and helping her grow her unique event-planning business.

2. Online dating consulting.

Countless people worldwide have downloaded apps like Tinder, Coffee Meets Bagel, and eHarmony to meet their next potential love matches. However, the world of online dating can be just as fraught as traditional meet-ups, which is why some romance experts have turned their passions for helping friends get hitched into lucrative businesses. 

Sameera Sullivan is a New York City matchmaker and runs a service called Lasting Connections. Sullivan offers online dating consultants and assistance to help people meet potential significant others. Lasting Connections is on the high end of the online dating consultancy spectrum, charging $45,000 for a year of in-depth coaching or $6,500 for 3 months of a virtual coaching program. Some coaches offer by-hours services at $99 each. 

An online dating coach will help you create a profile—and some will choose photos and write your bio for you. Some services will filter matches for you (so you don’t have to see any rude or gross messages) and help you dress for upcoming dates. 

If you have a matchmaking knack, consider taking your business digital by getting into consulting. 

3. Edible insect production.

Are you looking for a low-calorie source of protein that doesn’t harm the environment? Consider cricket protein, which uses food-grade insects to provide post-workout snacks for gym-goers across the world. 

Insects are considered an environmentally-friendly food source because they require less space and resources to grow. Compared to how much land and water products like wheat and beef take up, insects require much less and produce a yield much faster.  

As more people realize the health benefits of eating insects, entomophagy startups are flourishing. Companies grow and sell everything from trail mix and protein bars to restaurant-grade scorpions and ants for Michelin-starred restaurants.

Get to know more about these “entopreneurs” and the niche they fill.    

4. Modern day funeral planning.

The funeral as we know it is changing. People no longer want their loved ones crying over their bodies in a church or stodgy funeral home. More people are requesting celebrations of life and unique burials that provide memorable send-offs for families. 

Alison Bossert, a celebration-of-life planner in Los Angeles, shared how she threw a “Memorialpalooza” for a client in 2019. The client, Jerry Seinfeld’s personal manager, was celebrated with 300 guests at the Sony Pictures Studios—there was catering, gift bags, a line-up of speakers, and even Seinfeld himself as the closer. This event was meant to be more of a party to honor the dead rather than a somber affair. 

Consider stepping into the world of modern-day funeral planning as more people request unique burials, parties, holograms, and other special ways to celebrate life.

5. Snow shipping

Do you live in a place with too much snow and want to get rid of it? You’re not alone. The company Ship Snow Yo will send 20 lbs or 50 lbs of real snow across the country to give you a winter wonderland wherever you are. Send snow to your relatives in Florida who are bragging about the mild winters, or order a snowman kit for yourself. 

This company highlights how you can take a seemingly undesirable resource and turn it into a valuable product. 

Every successful business starts with an idea.

These business owners prove that it doesn’t matter what your business idea is. If you have a strategic business plan and know-how within your industry, your concept can thrive. Take the first steps today to turn your off-the-wall idea into a success. Check out our funding opportunities to get your small business off the ground.