A Comprehensive Guide To Business Acquisition Loans

Camino Financial21 Feb 2024
A Comprehensive Guide To Business Acquisition Loans
A business acquisition loan can help you buy an existing enterprise. This financial tool provides the funding necessary to secure another company, paving the way for growth and expansion. Our guide sheds light on everything you need to know about these loans, from the best providers to the requirements and application process. Let's help you unlock new possibilities in your entrepreneurial journey!

The Best Business Acquisition Loans

Funding Circle

funding circle logo Known for their competitive rates and transparency, Funding Circle provides unsecured loans, ensuring businesses can purchase without the constraint of collateral.
  • Loan amount: $25,000 to $500,000
  • Interest rates: 7.49% to 24.99% (APR)
  • Minimum credit score: 660
  • Terms: 6 months to 5 years
  • Benefits: No prepayment penalties and dedicated account managers

TAB Bank

tab bank logo TAB Bank is a top choice for non-SBA business acquisition loans. They offer extensive financial products and services aimed at promoting business growth.
  • Loan amount: $30,000 to $300,000
  • Interest rates: 8.99% to 35.99% (APR)
  • Minimum credit score: 660
  • Terms: 1 to 5 years
  • Benefits: Expert guidance and customer-centric approach


ondeck logo OnDeck is a reliable choice for those seeking a small business acquisition loan. With flexible terms and swift loan disbursement, they ensure you won't miss out on a lucrative acquisition opportunity.
  • Loan amount: $5,000 to $250,000
  • Interest rates: 35.40% to 99.90%
  • Minimum credit score: 625
  • Terms: Up to 24 months
  • Benefits: Fast funding and customer-focused approach


quickbridge logo QuickBridge provides loans that are perfect for businesses needing short-term financial assistance to secure their acquisition.
  • Loan amount: $10,000 to $400,000
  • Interest rates: 1.11 (factor rate)
  • Minimum credit score: 600
  • Terms: 4 to 24 months
  • Benefits: Fast approval and flexible repayment options

Tips For Comparing Small Business Loans

Here are a few strategies to help you compare loan programs effectively.
  1. Assess Your Needs. Before you even start looking, understand what you need. What amount do you need? Do you want a secured or unsecured loan?
  2. Compare Interest Rates. The interest rate can significantly affect your total repayment amount. Look for lenders who offer competitive rates.
  3. Consider The Repayment Terms. Shorter terms usually mean higher payments but less interest over the loan's lifespan. Longer terms, on the other hand, could mean lower monthly payments but more interest overall.
  4. Check Credit Score Requirements. Ensure your credit score aligns with the lender's requirements.
  5. Consider The Lender's Reputation. Do some research to find out how the lender treats their clients. Do they offer support throughout the loan process? Are they transparent with their fees and conditions?
Apply For A Business Loan!

Business Acquisition Loan Requirements

Business Valuation

Before getting a loan, you need to know how much the business you want to buy is worth. A business valuation looks at the company's finances, its place in the market, and how it can grow. This helps you talk about the price and decide how big a loan you need. A professional valuation of the business gives lenders a clear idea of the business's worth. This can influence how much they're willing to lend.

Letter Of Intent

Get a signed letter of intent that includes the terms of the sale between you and the business owner. This letter outlines the sale's basic terms, like the price and how you'll pay. It also tells lenders that the business seller is serious.

Financial Documents

Lenders want to see how healthy the business is. This means you need to provide financial documents, like financial statements of the business you plan to acquire. The lender will look at: These papers show if the business makes money and is stable.

Business Plan

A good business plan for the continued operation of the business tells lenders what you'll do with the business. This plan should include:

Sales Projections

Your future sales estimates show how well you expect the business to do after buying it. Realistic, well-researched estimates can make lenders more confident in lending to you.

Proof Of Collateral And Proof Pf Funds For A Down Payment

For some loans, you may need to have collateral. This can be property, equipment, or other business assets. If you can't pay the loan, the lender can take these assets. Also, showing that you have money for a down payment shows you're serious about buying.

Other Key Qualifications

  • Your Personal Credit Score. A high score can help you get better loan terms. Some lenders want you to have a score between 600 to 680.
  • Business Credit Score. If your business has a good credit score, lenders will trust you more. It shows you've managed your past debts well. Some lenders want you to have a score of 80+.
  • Your Experience In Business. Lenders want to know about your past experience in the business world. They'll be especially interested if you've worked in the same industry as the business you want to buy. This shows you know how to run the business well.
  • Cash Flow. A healthy cash flow shows how well your business can handle loan payments.
  • Debt Service Coverage Ratio (DSCR). A good DSCR (of more than 1) can increase your chances of getting a loan. This ratio is your net income divided by your total debt payments.
  • Down Payment. This is 10% to 20% of the total loan amount. It shows you're serious about buying the business. It also gives lenders confidence in you.
  • Personal Guarantee Or Collateral. For larger loans, lenders might ask for a personal guarantee or collateral. This can be personal assets, like your home, or business assets, like real estate or equipment.
Each lender might have different rules for small business acquisition loans. It's a good idea to check with potential lenders about their rules before you apply. This way, you'll be ready and increase your chances of getting the loan you need for your business.

How To Get A Loan To Buy A Business

  1. Pick A Lender. Check out the worth of the business you want to buy. Then, choose a lender who seems like a good fit. This could be a bank, an online lender, or even someone else who lends money.
  2. Fill Out An Application. Share personal, business, and financial information.
  3. Provide More Info And Documents. The lender will also need more information. You might need to share:
    • a business valuation
    • a letter of intent
    • financial statements of the business
    • business plan
    • sales projections
    • proof of collateral or down payment
  4. Sign The Loan Contract. If the lender approves your application, they'll give you a loan contract. Read this contract carefully. Then, sign it.

What Is A Business Acquisition?

A business acquisition is a process where one company purchases another, either entirely or specific parts. It's often used as a growth strategy and can involve various complexities, including legal and financial considerations.

Things To Consider Before Acquiring An Existing Business

It's essential to analyze the target company's:
  • financial health
  • market position
  • potential risks
Compliance with legal regulations, a careful financial assessment, and a clear integration plan are key. To ensure the acquisition aligns with long-term goals and leads to a successful transition, pay attention to:
  • cultural compatibility
  • understanding potential hidden liabilities
  • structuring the deal through negotiation

What Is A Business Acquisition Loan?

An acquisition loan for businesses is a specialized type of financing that individuals or businesses use to purchase an existing business or buy out a partner in a business.

How Do Business Acquisition Loans Work?

The borrower applies for the loan, and if approved, they use the funds to buy the business.
  • Structure. They have the same structure as term loans, where the borrower makes consistent payments towards the principal and interest over a predefined period.
  • Repayment periods. With conventional or digital lenders, you can expect terms ranging from three to ten years. If you opt for an SBA-backed loan, the term can stretch up to 25 years.
  • Loan amount. Some lenders may only agree to fund a percentage of the business price. You supply the rest in the form of a down payment. To determine how much to lend, most lenders will carry out a business valuation.
  • Down payment. Typically between 10% and 30% of the business's purchase price.
  • Collateral. These loans could be either "unsecured" or "secured."

Average Acquisition Loan Rates And Down Payments

Business acquisition loans can vary significantly based on:
  • size and type of business
  • type of loan
  • desired amount
  • the creditworthiness of the buyer
  • economic conditions
  • other factors
However, here is some general information that may be helpful:
  • Interest Rates. Business acquisition loans typically have variable interest rates based on a benchmark like the Prime Rate or LIBOR. Rates can range from around 5% to 80% for qualified borrowers.
  • Down Payments. Banks usually require a 20% to 30% down payment on the purchase price of a business.
  • Loan Terms. Acquisition loans usually have terms of 1 to 25 years.

Pros And Cons Of Business Acquisition Loans

  1. Expansion Opportunities. Business acquisition loans offer a chance to expand your operations and revenue.
  2. No Equity Loss. Unlike raising capital by selling shares, you don't lose control of your business.
  3. Potential For Immediate Cash Flow. If you're acquiring a business with a steady cash flow, you can start making profits soon after the purchase.
  1. Debt. Like any other loan, a business acquisition loan adds to your company's debt. You must be confident of your ability to repay it.
  2. Risk Of Business Failure. If the acquired business doesn't perform as expected, you might struggle to repay the loan.
  3. Collateral Requirements. Some loans may require you to offer collateral, which you can lose if you default.
#CaminoTip Consulting with a financial advisor could be beneficial in making an informed decision.

Where Can You Get A Loan To Buy A Business?

Banks And Credit Unions

Banks and credit unions can lend a lot of money and might give you a good interest rate. But they usually want to see a good credit score and a solid business plan. They might also take longer to approve your loan than online lenders.

Alternative Sources

You could try peer-to-peer lending platforms, private investors, or even friends and family. Some businesses also look at bridge loans. These are short-term loans that you use until you can get a long-term loan.

Online Lenders

Online lenders make getting a loan easy. They might be okay with a lower credit score and may approve your loan quickly.

Types of Business Acquisition Loans

SBA Loans (SBA 7(a) or Express)

SBA loans are special loans supported by the government. They aim to help small businesses grow.
#DidYouKnow SBA stands for Small Business Administration.
For buying a business, the SBA 7(a) and SBA Express loans are popular.
  • SBA 7(a) loans are great because they offer a lot of money (up to $5 million). They also have long repayment times and low interest rates.
  • SBA Express loans are faster but offer less money (up to $350,000). They're a good pick for smaller business buys or if you need a quick loan while waiting for a bigger one.

Term Loans

Term loans come from regular banks and online lenders. You get all the money at once and pay it back over a certain time. These loans have a fixed or variable interest rate. Term loans are a top pick for buying businesses. This is due to the big amounts and clear repayment plans.

Startup Loans

Startup loans are for new businesses and fresh entrepreneurs. If you're buying a business as a new project, this could be for you. But remember, as a newcomer, you'll need a solid business plan and good personal credit to qualify.

Rollover for Business Startups (ROBS)

ROBS isn't a loan. That said, it allows you to use your retirement funds to buy a business. The best part? No early withdrawal fees or taxes. But it's a tricky process and usually needs a money expert's help.

Seller Financing

The business seller gives you a loan to cover part of the cost. You pay the seller back over time, usually with added interest. This works well if you can't get a business-buying loan. That said, the seller needs to be willing and able to offer the loan.

You Can Invest In You Recently Acquired Business And Achieve Success

Business acquisition loans offer a powerful means to fuel your entrepreneurial ambitions. Every option has its unique features and requirements. Choosing the right one depends largely on your circumstances and goals. However, just as important is having the funds to invest in your newly acquired business. That's where Camino Financial comes into play.
You cannot use our loans for business acquisitions, but you can use them to grow your business by investing in marketing, employees, cash flow, and so much more.
Apply For A Business Loan!  


Do business acquisition loans require a down payment?

Most business acquisition loans require a down payment, usually ranging from 10% to 20% of the total loan amount. However, there may be exceptions depending on the specific lender and loan product.

How do you get funding for an acquisition?

To get funding for an acquisition, you typically need to:
  • assess your qualifications,
  • choose a lender,
  • fill out an application,
  • and provide the necessary acquisition information and documentation.
Depending on the lender and loan product, you might also need to make a down payment and sign a loan contract.

Can you use SBA loans for acquisitions?

Yes, you can use Small Business Administration (SBA) loans, particularly the SBA 7(a) and SBA Express loans, for business acquisitions. These loans are government-backed, which can make them a more accessible financing option for small businesses.

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