Raising finance to acquire a business

Published:
January 28, 2021
concept 1868728 1920

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.

Related insights

Crypto-tax rules, mandate data sharing from crypto-businesses

In an influential development for the cryptocurrency industry, the EU has recently adopted a groundbreaking law that imposes a mandatory requirement on crypto corporations to disclose consumer holdings. This new direction, known as the Eighth Directive on Administrative Cooperation (DAC8), signifies a pivotal shift in the adjustment terrain, aiming to enhance translucence and ensure conformity…

Read more 05.12.2023

How to sell a restaurant in 2024

Selling a restaurant is a complex method that requires careful planning, strategic decision-making, and a deep understanding of the current market trends. As we step into 2024, the dynamics of the restaurant enterprise continue to evolve, influenced by factors such as technology, changing consumer preferences, and economic conditions. In this comprehensive guide, we will explore…

Read more 05.12.2023

How to Buy a Restaurant: The 9 Steps from Inquiry to Closing

Hopping on the journey of owning a restaurant is an exciting yet complex endeavor, comprising nine crucial steps. This in-depth guide aims to provide aspiring restaurateurs with a detailed understanding and a strategic approach to navigate the intricate process of acquiring a dining establishment. Beyond the initial allure of selecting a restaurant and completing a…

Read more 04.12.2023

Instant Payments

In a groundbreaking development for the European Union and European Economic Area countries, the Council and the European Parliament have reached a preliminary consensus on the proposal for instant remittances. This innovative move is set to transform the economic landscape, enhancing the accessibility of instant payment options in euro to consumers and business-companies for consumers…

Read more 04.12.2023

VAT transactional reporting obligation for remittances

In the ever-evolving landscape of monetary adjustments, the European Union (EU) has introduced a consequential development known as the VAT transactional reporting commitment for remittances, commonly referred to as CESOP (Cross-Border Electronic Sales of Services and Payment). Effective from the year 2024, this directive mandates that all EU Payment Service Providers (PSPs) record and report…

Read more 04.12.2023

Forex license in Cook Islands

The Cook Islands, renowned for its breathtaking natural beauty and warm hospitality, has emerged as an attractive destination for commerces looking to obtain various monetary licenses. In this article, we will delve into the processes and advantages of securing Forex licenses, Securities Dealer permits, and Assets Exchanging permits in the Cook Islands. With a focus…

Read more 10.11.2023

Kahnawake Gambling Permission: A Great Chance for Startups

In the dynamic and ever-evolving world of e-gamble, the right licensing can make or break a startup. One option that has gained distinction in recent years is the Canadian Gamble License. Situated in the Mohawk Territory of Kahnawake in Canada, this permission provides a unique and advantageous opportunity for gamble startups. In this article, we…

Read more 06.11.2023

Forex License in Fiji

The Forex market is a highly dynamic and liquid economic market that attracts traders and depositors from all over the world. Fiji is an attractive destination for corporations looking to enter the Forex trading industry, thanks to its stable political circumstances, strong economic system, and strategic location in the Pacific region. However, to operate legally…

Read more 02.11.2023

EMI License in Belgium

Belgium, strategically situated in the heart of Europe and renowned for its rich culture, delectable chocolates, and timeless historical appeal, transcends its cultural prominence to establish itself as a unique player in the realm of financial services. It emerges as an enticing focal point for enterprises seeking Electronic Money Institution (EMI) licenses. These licenses serve…

Read more 01.11.2023

EMI and PI license in Spain

Within the ever-evolving realm of financial innovation, Spain, a beacon within the Iberian Peninsula, beckons intrepid souls driven by an insatiable appetite to explore the uncharted horizons of the electronic money and payment service sector. The convergence of E-Money Institution (EMI) and Payment Institution (PI) licensing endeavors within this dynamic crucible sets the stage for…

Read more 01.11.2023

Gambling license obtaining in Romania

Over a span of three decades, Romania has honed its approach to managing the landscape of chance and risk devices. During this extensive period, the government has enacted and refined a series of significant legislative acts, each imbuing the domain with new layers of regulatory complexity. In the contemporary context, governance over this sphere falls…

Read more 01.11.2023

MSB license in Grenada

Nestled in the eastern Caribbean, the tri-island state of Grenada offers much more than its stunning beaches and lush landscapes. It’s also a prime destination for businesses looking to establish a Money Services Business (MSB). The process of obtaining an MSB license in Grenada is straightforward and offers an array of opportunities in the monetary…

Read more 26.10.2023