Best business acquisition loans
Key takeaways
- A business acquisition loan is any business loan used to acquire a business
- Business acquisition loans with high loan amounts and long repayment terms are usually needed to cover the full cost of an acquisition
- Expect to submit a long list of business financial documentation unless you pick an online lender that streamlines the process
A business acquisition loan has different needs than small business loans used for other purposes. You’ll likely need a business loan with high loan amounts and long repayment terms, giving you a runway to continue growing the business.
But unlike startup business loans, the business may already have years of experience behind it and an established customer base. You can use the business’s financial records to qualify for a variety of business acquisition loans. We rounded up the top six lenders that you can use to finance your business acquisition.
Compare the best lenders for business acquisition loans
Lender | Loan type | Loan amount | Bankrate score |
---|---|---|---|
SBA | 7(a) loan | Up to $5 million | 4.8 |
Lendio | Term loans | Up to $2 million | 4.6 |
Taycor Financial | Equipment financing | Up to $2 million | 4.2 |
Bank of America | Secured business loan | From $25,000 | 4.3 |
SMB Compass | Alternative business loans | Up to $10 million | 4.4 |
Funding Circle | Long-term loans | $25,000 to $500,000 | 4.6 |
SBA
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Small Business Administration (SBA) loans are loans given through SBA lenders, and each loan is approved by the SBA. The SBA guarantees part of the loan in case the business owner defaults. This SBA guarantee makes these loans easier to get than conventional loans, provided that you meet the requirements.
SBA loans are known for offering high loan amounts of up to $5 million for the popular 7(a) loan. You also get long repayment terms of up to 10 years for working capital or 25 years for real estate loans.
So, if you need a large amount to acquire your new business, SBA loans have the ability to grant you the capital you need. You will have to meet the lender’s requirements to gain capital into the millions of dollars.
Lendio
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Lendio is a loan marketplace with over 75 lenders housed inside its digital walls. Through its partners, it offers term business loans with an array of top-notch features: high loan amounts, reasonable starting interest rates and long repayment terms.
On top of those features, startup businesses with at least one year in business can qualify for Lendio’s loans. You need just $8,000 in monthly revenue and a 600 personal credit score to qualify. Many lenders, like traditional banks, require more to get started with their business loans, such as $200,000 or more per year in revenue and two years in business.
Taycor Financial
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Taycor Financial offers up to $2 million for equipment financing with the ability to approve financing within hours of your application. It offers equipment financing and leasing, letting you pick the financing option that suits you.
Taycor offers a simple one-page application online, which can prequalify you for up to $400,000. If you need a larger amount, you’ll need to contact Taycor directly.
The fintech lender is a Bankrate Awards finalist offering the best small business loans for newer businesses. While it doesn’t state its equipment financing requirements online, Taycor Financial typically requires a low 550 personal credit score and $96,000 in annual revenue to qualify. Those minimal qualifications are a rare find, even among online lenders.
Bank of America
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Bank of America’s secured business loan offers some of the lowest interest rates you’ll find on the market. Interest rates start as low as 6.75 percent as long as you qualify with strong finances. Its secured loan comes with a four-year repayment term if you secure it with business assets or five years if secured with a CD.
The bank also doesn’t advertise a maximum loan amount. Lending giants like Bank of America tend to be able to manage large loans into millions of dollars, helping you fully cover the amount for your business acquisition.
SMB Compass
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SMB Compass offers a suite of loan options that you can use as your small business acquisition loan. Those include term loans and business lines of credit. But you can also tap into alternative types of loans, such as invoice financing and asset-based loans. Its loans offer high loan amounts of up to $5 million or $10 million.
SMB Compass works best for established businesses with fairly high personal credit scores and strong revenue. For example, its term loan requires a 680 personal credit score and $500,000 in annual revenue. Its SBA loans require three years in business, a 650 personal credit score and $500,000 in annual revenue.
Funding Circle
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Funding Circle term loans help you get a repayment term that works with your schedule. Its term loan can offer financing for as little as six months and up to seven years. In the online lending landscape, many online lenders stop short with two-year repayment terms for term loans.
Funding Circle also offers flexibility by allowing you to make monthly or biweekly payments. And you won’t get tagged with a penalty if you pay the loan off early. That feature is important since repayment penalties for a business acquisition loan could get high if it’s calculated as a percentage of the loan.
You also get competitive interest rates starting at 7.49 percent, which sticks close to interest rates that you’d find at traditional banks.
What is a business acquisition loan?
A business acquisition loan is a business loan used to buy a small business, small business idea or business franchise. The goal is to finance most or all of the business acquisition through the business loan.
To see if you can get the full funding, you’ll need to apply or prequalify with the lender to see if it will approve you for the full amount. The lender will approve you for a loan amount based on your current finances and business qualifications.
If the loan is partially approved, you may need to work out separate terms to fund the rest of your business acquisition, such as giving the existing ownership a commission.
Business acquisition loan requirements
Lenders may require a hefty list of documents to ensure that the business being acquired is stable and able to repay the loan. Those documents include:
- Bank statements for at least 3 to 6 months
- Business tax returns for acquired business
- Business formation documents
- Proof of ownership
- Business licenses and permits
- Business plan
- Personal bank statements and tax returns
How to get a business acquisition loan
Getting a small business acquisition loan works similarly to getting a business loan used for other purposes. The steps to getting a business acquisition loan include:
- Compare lenders and the types of business loans they offer.
- Apply for business loans with several lenders to see your loan offer. You could also apply for a loan marketplace like Lendio or prequalify with lenders, which gives you a peek at what you could qualify for without finalizing the loan offer.
- Compare loan offers, including interest rates and repayment terms
- Choose the loan offer that best suits your business.
- Receive your business loan in your deposit account.
Bottom line
You can use a variety of business loans to finance your business acquisition, though a term loan is a popular choice for this purpose. Lenders often want to see strong financial records from both the business and the new owner’s personal finances.
But you can find some lenders that loosen requirements, such as allowing fair or bad credit and low revenue. These lenders may be ideal for business owners acquiring a small business.
Frequently asked questions
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A small business acquisition loan is a business loan used to acquire a small business. You can use nearly any business loan for this purpose. You simply need to state this purpose on the business loan application.
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It’s rare to find a business acquisition loan that wouldn’t require you to put money down, though it’s not impossible. If you’re financing equipment or securing a loan with large assets, you have a higher chance of getting a business loan with no money down for a down payment.
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Yes, you can use an SBA loan to acquire a small business. As with all business loans, lenders will focus on whether that business can turn a profit and repay the business loan. You may need financial documentation for the business as well as a solid business plan for growing the business after you acquire it.
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