Loans to Buy a Business

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Buying a Business Using a Loan

We partner with lenders across the market to provide funding for business purchases, regardless of size. From small businesses to large multi-million-pound takeovers, we can help. Our business acquisition loans are unsecured and designed for smaller business purchases.

Read on to find out more about how our funding could help you to buy a business, or fill in the form to talk to an expert.

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Criteria

Unsecured business purchase loans offer little comeback for the lender in the event of default. As such, the criteria is relatively strict. We can arrange unsecured business loans to buy a business on the following basis:

  • Borrow from £25,000-£100,000
  • Only profitable businesses considered
  • Terms from six months to five years
  • Rates from 5.7% p.a.
  • Clear credit history required for unsecured applications

How Much Can I Borrow?

Our unsecured business acquisition loans are available between £25,000-£100,000. The amount you can borrow will depend on several factors. We can offer larger loans where security or assets are available.

The loan must be affordable, and as such, the accounts will be closely scrutinised before a judgement can be made on how much you can borrow. The lender will also look into your previous record before issuing an unsecured business loan and will usually want to see a clear credit history, with no defaults or CCJs (County Court Judgements).

Do I Need A Deposit?

No, we don’t always require a deposit to lend when you’re purchasing an existing business. Where borrowing is unsecured, the lender will make a judgement on whether a deposit is required, however, we are often able to lend without.

For most unsecured applications, either a deposit or a personal guarantee from a homeowner will be required.

For applications on a secured basis, or where there are significant assets or invoices that can be secured against, we may be able to lend without a deposit.

Do You Lend on Larger Takeovers, Mergers & MBOs?

Yes, we can fund much larger acquisitions, mergers and MBOs (Management Buyouts) but this type of funding is quite different to smaller business purchases. We can fund large acquisitions on a bespoke funding basis.

You can find out further details on our offering by talking through your circumstances with one of our advisers.

Types of Funding Available When A Business Is Being Purchased

There are number of options available depending on the circumstances. The type of funding that’s most suitable will depend on a number of factors, and in some cases, a combination of the below options may even be suitable.

The most common types of funding are the following:-

Unsecured Business Loans

Unsecured business loans can be ideal for those looking to buy smaller companies without a lot of assets. When taking this route, you will usually have to provide a personal guarantee, meaning the lender can pursue you personally should you fall behind on your repayments.

As there is very little security for the lender, affordability and your business plan will be key to the application. Adverse credit will be a major negative and could cause real issues for your application.

These loans are quick to complete, and we can usually fund these loans in as little as 5 days if all information is provided upfront.

Secured Business Loans

Secured lending involves a charge being placed on your property by the lender when the loan is taken out. This means that the property may be at risk if you fail to keep up repayments.

Although this increases the risk for you, it does decrease it for the lender and as such may mean that the lender takes a slightly more relaxed view. As such, your chances of being approved will increase if suitable security is offered.

As security is being offered, it may be easier to secure funding in this way without a deposit and the lender may be more lenient about adverse credit.

Secured lending is available for larger loans and we can often offer longer terms than would be possible using unsecured lending.

Due to the extra processing involved in secured lending, including a survey report on the property, these loans can take a little longer to process. Funding is usually available in 2-3 weeks.

Asset Finance

Asset finance involves using the assets of a business as security for funding. This type of funding can be used as security in much the same way as a property would be when taking out a secured business loan.

Where you have your own business in the background, we could potentially use the assets of both your current and the new business as security.

In many cases, the funder will purchase the assets from you and you then slowly purchase it back through the agreed monthly repayments.

When taking out asset finance, you are placing your assets at risk should you fail to keep up repayments and could lose them in such circumstances.

Invoice Finance

Where there are significant takings each month on delayed payment terms, invoice finance may be used to partially fund a business purchase. It works by allowing you to borrow against the future income, with funds being released when the invoice is issued, rather than when it is paid.

Invoice finance applications are judged on the strength of the business who is to pay the invoice as well as your own business. As such, you will need a clear breakdown of the customers of the business.

Commercial Mortgages

Where you’re buying the premises of the business in addition to the business, a commercial mortgage could be the best option for you.

Commercial mortgages are available up to 80% of the property value, and in some cases, we can offer 80% of the going concern value – the value of the business and property combined.

Commercial mortgage rates are generally lower than those offered on business loans and the terms longer.

The underwriting is generally more involved and as such applications can take 6-8 weeks to complete.

Advantages of Buying an Existing Business

There are a number of advantages to buying an existing business rather than starting a new one. Here is a look at the pros and cons of this approach:

Advantages

  • Buying a profitable business means you will be able to enjoy immediate income and cash flow
  • Established trading businesses will have an existing customer base to market
  • Processes and supplier lines will already be in place and operating well
  • You can be secure in the knowledge that your business is profitable and has suitable demand
  • A strong reputation will stay with the business

Disadvantages

  • You will pay a premium for a strong business
  • There is a danger that some customers may no longer work with you once the previous business owner has moved on
  • Any previous reputation or customer service issues will become your problem
  • You will be bound by any contracts agreed to by the previous owner
  • Staff may be resistant to a new way of doing things

What Information Do I Have To Provide?

When applying for a loan to buy a business, you will need to provide certain information to the lender to enable them to make a lending decision. Although the exact documentation needed will vary from application to application, the lender will usually need the following:

  • A fully completed application form
  • Financial projections outlining expected future trade
  • Two years’ accounts for the business
  • Three months bank statements from the business (in some cases)
  • Six months’ personal bank statements
  • A CV detailing any relevant experience
  • A detailed business plan

What if There Are No Assets?

Unsecured business purchase loans are designed to be taken without security. As such, although applications where the business has a strong asset base are desirable, it isn’t crucial. If you’re looking to buy a business with no assets, let us know and we may still be able to fund it.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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