Finding Money to Purchase a Business

Becoming an entrepreneur is something you have dreamed about forever.  You have found the perfect business and you have done all the research in to the business.  A comprehensive business plan has been written and you are ready to buy the business.  Know there is only one hurdle left to becoming a business owner.  You have to find a lender to back your venture.  This can be a daunting task, so you want to make sure you are well armed before you enter a bank or other lending institution.

Chances are pretty slim that you will have the capital you need to buy a business outright.  Even if you are starting a business from the ground up and have enough money for start-up you will still need a cushion until the business is making a profit.

Banks seem to be the most popular method of finding the money to purchase a business.  Although economics can play a part in getting the needed loan, if you are prepared with your business plan you can still be successful. 

A lending institution will not usually lend you the entire amount you need for a business.  It is common for the bank or lending institution to lend only about sixty per cent so you will need to have the forty per cent or find an independent source.

You will use the business as collateral for the loan from the bank.  If you must acquire more money you will need to find another type of collateral for this second loan.  How you find this source will depend on who you find to make the loan.  You may be asked to use your home or other personal items.

These are some of the requirements that you should be prepared to show the lending institution: an audited accounting of the prospective business.  The bank would like to see at least three years worth of accounts if at all possible.  They only lend money on the basis of what they can see in black and white, so make sure they are accurate.

In your business plan you can put in the revenue that you expect to bring in.  Try to get as realistic as you possibly can. You could even give them several ways that you expect to be able to provide revenue to pay for your expenditures.  Of course, it will be necessary to detail how your money will flow after all your bills are paid.

Get the help of a professional to help with valuing the business you want to purchase.  You can use the help of an appraiser through your real estate agent or perhaps your accountant.  Businesses that are housed in a building will be based on the building and other assets, while businesses that don’t own a building are based on earnings.  The basis for this valuation can be anywhere from three to eight times the current value or what the market is allowing for the economy. 

Be sure to have your bank statements, ID, assets and liabilities, and your work experience to give to the lending institution as part of your packet.  Other resources to find money could also include the Small Business Association or a private investor. You would need to find out the individual requirements from these agencies.