10 Things You Should Know Before Taking a Business Acquisition Loan

Business Acquisition Loan

Written by Bienvenu Mavakala

June 13, 2022

Purchasing existing business franchises is something that helps small businesses in establishing a stronger baseline in the market. Through an already existing name, getting acquired by another business can be helpful in not one but many ways.

Not many small businesses can afford to buy an existing business franchise. A business acquisition loan thus helps small businesses to acquire a business franchise to grow faster in the industry.

What is a business acquisition loan?

A business acquisition loan is an amount borrowed by small businesses to acquire another existing business’s franchise to grow faster in the industry. A business acquisition loan can be paid in any way, through stocks, cash, or bank transfers.

How are business acquisition loans helpful?

Small businesses with an aim to expand faster opt for business acquisition loans. Like other business loans, a business acquisition loan also helps small businesses with managing their working capital to keep the day-to-day activities going without a gap.

While opting for a business acquisition loan, businesses need to be mindful of a few things that can help them make better decisions. Here are 10 things you need to know before taking a business acquisition loan.

1.  Guarantee:

Before going to put forward your request for a loan to the bank, you need to know you’ll be asked about collateral proofs.

Small businesses that are new in the market need to provide guarantees to the banks/lenders to ensure timely repayment of the loan.

You might have to put forward your assets as a guarantee and ensure the lender by pledging for collateral.

2.  Business plan documentation:

Small businesses need to put forward their business plans to the lenders to ensure their strategic planning and working towards their goals. A business plan document can be given to the bank for this purpose; this document includes your future projects, products, and the current financial situation of your business.

While there can be exceptions in this one most commercial businesses will have to show this document while going for a business loan.

3.  Financial details of your business:

Along with the business plan and guarantee for your business, the bank will require you to provide your current financial statements at the time of requesting a business loan.

Your current financial statements depict your business’s progress and if you’re going to be able to repay the loan in the given time.

4.  Details of account for the loan:

This is something that seems very obvious but is equally important to be mentioned here. Once you’re up for a business loan from the bank, they are going to ask you about your business account details, both account payable and account receivable.

The account that’s going to receive the loan and the account from where you plan on paying the loan back. Both need to be mentioned at the time of requesting a loan.

5.  Personal details:

As a small business owner, you will have to provide your details to the bank as a mandatory requirement for receiving a loan. Your details ensure your liabilities and your credit score, and loan history to give enough assurance to the bank for timely repayment of the loan.

6.  History of loan returns:

Another thing that banks might check before granting you a business loan is your history of loan returns. Timely repayment of loans creates a good record for you to make a request for loans in the future.

7.  Your annual income:

When small business owners need to get loans from the bank, their personal information may be just as important as details regarding the business. Your personal annual income is also asked for at the time of a loan request at the bank.

Personal annual income can be a guarantee for timely repayment if the business’s financial statements aren’t enough to support your request.

8.  How are you going to use the loan?

When you’re taking a business loan, you will have to specify the reason for getting the loan and where you’re going to use the loan money. Banks are keen about where the money goes when it is taken from them as a loan. You will have to specify the objective of taking the loan at the time of making a loan request.

9.  Your credit profile:

Some loans have a specific credit score that you need to have in order to be able to get the loan. Banks will ask you for your credit profile to make sure you have a good previous history of loan repayment.

10.  Does your business have the ability to repay on time?

Small businesses often struggle with timely repayments; banks are firm in this scenario and make sure your business can repay the loan on time.

All of the above-mentioned points are important when you’re opting for a business acquisition loan as a small business owner. Having good knowledge on the matter and being prepared beforehand increases your chances of getting your loan request approved by the bank/lender.





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