What is a Business Acquisition Loan?
A business acquisition loan is a loan taken out specifically for starting a business venture- whether buying an existing business or starting a new one. Business acquisition loans vary in kind, and sizes and rates fluctuate depending on the nature of the business and the qualifications of the borrower. Four common types include term loans, SBA 7(a)loans, startup loans, and equipment financing loans.
Business Acquisition loans can be difficult to acquire since it is not only the applicant’s financial standing which lenders will have to consider but the viability of his or her prospective business as well. Given that many aspects of a business are unpredictable, making the overall value of the business itself somewhat intangible, lenders will need to be convinced that either the borrower’s credit is strong enough to ensure loan payment irrespective of the success of the business, or that their business strategy will yield results.
For an in-depth guide to getting a loan to buy a new business, check out our blog post here.
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Rates depend on what kind of business acquisition loan you are applying for. In general, they will be between 3% – 10%. They may also be fixed or variable depending on the type of loan. Term loans, for instance, will have a single fixed rate, while other types may have rates that fluctuate.
Furthermore, financial standing also has an impact on rates. For example, credit scores of around 550 or higher will generally qualify you for an APR of anywhere between 9% – 50%, while scores of roughly 600 or higher will qualify you for anywhere between 14% – 40%.
Applicants whose credit scores are 700 or higher are excellently situated for business acquisition loans and will have many lending options open to them. Borrowers with credit scores of 650-700 will be slightly less eligible, but will still be open to many lenders. Credit scores between 575-649 will still yield options, but they will be fewer and likely require higher interest.
Applicants who already own business will also have their business credit taken into consideration when applying for a business acquisition loan. Of the various factors determining business credit, payment history is the most important. This means that the same principles for maintaining healthy personal credit (most importantly, paying debts on time) also apply to your business.
For Bad Credit
Borrowers with credit scores below 575 will find it difficult to be approved for a business acquisition loan. The most effective way to eliminate the difficult is, of course, credit rehabilitation. Staying below 30% of your credit limit and making minimal requests for loans are significant ways of maintaining a stronger credit score. Paying off outstanding debts, however, is the top priority in re-establishing your credit- even a single late payment of 30 days can have a severe impact on your credit score.
Alternatively, it is possible for a friend or family member to act as a guarantor, so long as they meet the lender’s financial requirements for eligibility.