Sometimes getting the necessary funding to buy a business can be difficult. Here we cover 5 ways to finance the purchase of a small business.
Purchasing a small business can help you quickly maximize on current market trends and earn a substantial profit. Additionally, buying a small business means the business’ foundation has already been set by its founder. The general groundwork regarding getting suppliers, transportation and inclusion of unprecedented costs into the business’ budget have also already been done. The business also has a steady clientele.
Furthermore, the presence of certified financial records enables you to easily conduct a business valuation. This valuation would enable you to conduct projections on your own. Projections would aid you in knowing whether the business is likely to be making a profit in the future.
Getting the necessary finances to buy a small business, however, could be difficult. This would be especially so if you lack the financial capability to pay all or a substantial amount of the business’s purchase price. The following are means you can use to obtain the amount you require.
Bank Loans Secured by Fixed Assets
The purchase of business in most occasions includes buying land or equipment involved in the business. The value of such items remains constant over time. They can thus be put up as collateral so as to finance your purchase. To get fair value on the market at the time of purchase, make sure you undertake a business valuation. These are relatively easy to have conducted in Western Australia. The business valuation would ensure you know the true value of the property and equipment, thus giving you a clear view of your loan range. In this way, none of your personal property or would be included in the loan. Your personal belongings would not be at risk in case you are not able to meet loan repayment terms and conditions.
Government Loans
In case you have bad credit and cannot receive a loan from a bank, you may be qualified to receive a loan from the Australian government. These loans have a different set of requirements from bank loans and can be lent to even people with no collateral to put up for their loan. They could vary with the type of industry you are seeking to invest in depending on the government’s policies at the time of issuance.
Raise More Equity
You can obtain money to buy a small business from a venture capitalist. Funding from a private investor or angel investor could also suffice. Once the investor gives you the capital you need, he or she will own a certain percentage of your business and receive returns about the extent owned.
The Seller
Obtaining financing from the business’s seller would occur through vendor take-back financing. Your seller will loan part of the business’s cost to you, and you will pay him or her over time.
Mezzanine Financing
In a process known as peer to peer lending, you can obtain a loan for buying a small business in Western Australia. These type of loans usually have higher interest rates than loans on fixed assets. You do not require collateral for these loans, and they are relatively easy to obtain.
Whether in the process of purchasing a small business or during its management, it is important to conduct business valuations over time. These will help you track progress on your business and help you weigh the benefits of your method of loan repayment. Ultimately, they will help you significantly improve your business.
Mathieu Paul
Director – Business Improvement
P: +618 6315 2700
E: enquiries@insightcp.com.au
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
Liability Limited by a scheme approved under Professional Standards Legislation
Reference Links:
https://www.bdc.ca/en/articles-tools/start-buy-business/buy-business/pages/custom-financing-acquisition-four-methods.aspx/
https://governmentgrantsaustralia.org/small-business-loan-australia.html
https://australianbankingfinance.com.au/banking/trends-apparent-in-peer-to-peer-loans-/
https://www.sba.gov/starting-business/how-start-business/business-types/buying-existing-businesses
https://www.australiangovernmentgrants.org/qa/qa.php?id=getting-a-business-loan-without-collateral
https://smallbusiness.co.uk/financing-the-purchase-of-a-small-business-2463257/
