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It’s not always necessary to build a business from the ground up. Many entrepreneurs instead prefer to acquire an existing business, with all the established infrastructure and client base that entails.
If you have identified this type of opportunity, it’s important to know how to buy a small business. First, you need to clarify the difference between buying a business and buying a franchise. When you buy a business, you take ownership of it and possess complete control.
In the franchising model, on the other hand, you lack that autonomy. You’ll get lots of resources and support from the corporate headquarters, but they’ll also have a say in how you run the business.
If you feel that buying a business is your preferred route, you’ll need to evaluate the situation carefully to set yourself up for as much success as possible. For example, if you choose a business within an industry that you have already worked in, your experience will be a valuable asset. Likewise, choosing a business with solid financial performance is always better than trying to swoop in and save a struggling operation.
The key to any business purchase is asking the right questions. Don’t make assumptions. Instead, pry into every nook and cranny. It can be tempting to think you’ll just figure things out as you along, but once you take over, the day-to-day operations of the business will most likely consume your time. So use your pre-purchase time to learn about everything from inventory to partnerships to leases to competitors.
Another crucial question is how you will fund the transaction. Most entrepreneurs use debt financing when buying a small business, with business acquisition loans being one of the most popular options.
A business acquisition loan is engineered to accomplish the very thing its name implies. These loans provide amounts up to $5 million and can fund in as few as 30 days. The interest rates can be incredibly favorable, starting around 5.5%. Rates like these will save you a substantial amount over the lifetime of the loan.
Qualifying for a business acquisition loan isn’t particularly difficult. Lenders will do a deep dive on the business you’re hoping to buy, requesting documentation of the business’s value and financial performance.
They’ll certainly be curious about your role in the purchase. Your personal finances will play a role, but one of the most important elements will be your business plan. The lender will want to know about your relevant experience and what your strategy is for the business. They’ll also want you to lay out your financial projections and share where you see the business going.
Treat the loan application process with the same care as you used while selecting a business to purchase. If a lender requests a certain document, be sure to provide it. And make sure your business plan is airtight. The fastest way to demonstrate your abilities is to follow a lender’s requests perfectly.
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California loans made pursuant to the California Financing Law, Division 9 (commencing with Section 22000) of the Finance Code. All such loans made through Lendio Partners, LLC, a wholly-owned subsidiary of Lendio, Inc. and a licensed finance lender/broker, California Financing Law License No. 60DBO-44694.