Raising finance to acquire a business

Published:
January 28, 2021
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It would seem that fundraising is an impossible task, but everything is much simpler than you might imagine The initial step for everyone is to choose the direction of the desired business. For example, you can open your own restaurant, amusement park, hotel, or any other business. After determining with this issue, one very important detail will need to be addressed, namely funding. It is very unlikely that when buying a business, a person did not borrow money or did not apply for a loan, since a very small percentage of entrepreneurs can initially buy their business for cash.

Banking services

Naturally, the most popular way to attract finance is the bank. Before taking out a loan, everyone finds a convenient way to do it. There are many loan options for aspiring entrepreneurs. There are government agencies that issue loans and provide guarantees. For example, the Small Business Administration provides up to 85% of loans up to $ 150,000 and 75% of loans over $ 500,000. In order to get a loan, it is necessary to explain to the lender the reasons for contacting him. A good case for borrowing money is needed. In most cases, it is necessary to provide the lender with the following data:

About business

Accounts

You need to show the invoices the business you want to buy for the last 3 years. This is done whenever possible. It is imperative that the invoices are truthful and show the business as it is. A loan from a bank can be obtained based exclusively on the provided accounts, any additional income is not taken into account.

Profit forecasting

It is necessary to consider the profitability of the business and predict the possible income for the next few years. It is better to foresee several variants of events and make 2 or 3 predictions. Also, when making a forecast, you need to take into account the costs and plan the cash flow after them. These costs include debt payments.

Business plan

A business plan should be at least 50 pages long, with clear arguments in defense of the business you are buying. The business plan should explain your intentions, plan to go to market, and more. Absolutely everything that you are going to do with the business should be indicated, no matter what kind of activity the business has.

Assessment

It is necessary to prove the value of the acquired business. If possible, this issue should be dealt with by a qualified specialist, for example, an accountant, who can give a professional assessment of this business. When buying any real estate, the help of an inspector will come in handy, who will be able to evaluate the bricks and mortar. If this is a business that has nothing to do with real estate, then the profit is used for the assessment, a multiple of the profit of this business. For example, some businesses now value three to eight times their profits.

 Sales agent details

You must provide the lender with the details of the selling agent or supplier (if the purchase is direct).

Introduce yourself

Summary

You need to show a detailed resume. It should be short, but informative, with an indication of previous jobs, all experience and other information that will significantly increase the chance of obtaining funding.

Assets and liabilities

Submitting a statement of assets and liabilities that will list everything you own and all your debts (credit cards or outstanding loans).

Bank statements

Anti-money laundering and anti-fraud legislation asks for proof of your ID and residence (photocopies of your passport can be provided). If you are sure that you will need to take a loan from a bank, then you need to study the available loan products. You need to study the duration and interest rate of different loans, as well as other information that may affect your costs or time. You need to look not only at the interest rate, but also at the term, for example:

  • Loan №1 is for $ 100,000 at a rate of 2% for 10 years, which means it is working on $ 1,110 a month.
  • Loan №2 is for $ 100,000 at a rate of 3% for a period of 20 years, it will work at $ 710 per month.

Despite the fact that you pay more at the interest rate in the second option (since the debt repayment period is longer), you pay $ 400 less per month. If you think in terms of the cash flow of your business, this payout difference can play a huge role in the further development of your business. If you want to get financing for buying a business without banking intervention, there are these options:

Business Finance Specialists

These specialists are brokers who provide assistance in concluding a better deal. Brokers have access to many suppliers. They are not influenced by the brand, so they can provide you with independent assistance. They will be able to offer reliable funding despite the fees. There are brokers who take a commission from the buyer of a business, and there are those who take a commission from the lender. The broker will be able to help you make the most profitable decision and justify it.

Government loans

If a potential business owner wishes to obtain a government loan, then he should carefully research this issue, since different loans will have different methods of selection and application. The Treasury offers local banks and community development loan funds to improve economic growth. To access these loans, you need to find a participating institution in your area or state.

Private investors

Private investors, or as they are known “angels” or “wealthy people” are ready to financially support new businesses that have potential. Their goal is a good return on their money investments in the business in a short time. The growth of people who are ready to invest in any business can be explained by the low profitability of the stock market according to the latest data. Private investor investments range from $ 32,000 to $ 37,000. They can also provide assistance, as most of them are experienced entrepreneurs. It is very convenient to contact such people in cases when you want to combine two businesses into one bigger one. Before you start cooperating with private investors, you should consult with a qualified lawyer or accountant.

Venture capital funds

Ventures aim to invest in promising and original business ideas. They also take into account the competitive advantage of the product or business and the qualifications of specialists. If you own a business that is about ensuring a high standard of living and ensuring your job satisfaction, then venture capital investors are unlikely to agree to cooperate with you, as most likely you will not be able to provide high financial returns. For example, some of these funds are planning to raise $ 50 million, while investing $ 10 million. They want to fulfill this plan in 3 years. It is important not to forget that when you take out any loan, you in any case lose your finances.

Crowdfunding

A new step in the world of financing business projects. Crowdfunding is a process that consists of the pooling of finance by individuals or groups of people to fund another group of people, individuals or businesses. It is not used on an ongoing basis to help acquire an existing business, but there are cases of success in this direction. Although this method is new and not as popular as the others, everything is transparent in this method, since social networks are involved. Naturally, to make such decisions, be it crowdfunding, a loan or a private investor, you need to consult with a qualified specialist. Nevertheless, before deciding on such a step, it is necessary to delve into and understand the issue from the inside.

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