Financing Business Acquistions

The decision to buy another company can be challenging. While the situation is usually not as simplistic as a stranger walking up to you on the street and asking if you want to buy a company, there are a lot of details that may be lacking in such a business transaction. Whether a company sought you out as a potential purchaser or you pursued the company, there are likely many questions you are asking yourself. How do I know a deal is worthwhile? Can I incorporate this acquisition into my current company? And, perhaps most important, you may be wondering how to finance a business acquisition.

If you’re new to the world of mergers and acquisitions, there is a lot of legal jargon and hoop jumping you may need to adjust to. Selling a business is rarely an easy process, and buying it can be even trickier, especially when it comes to securing capital. Since many small business owners rely on bank loans for financing needs, especially while creating an established business, it’s only natural to head on over to the nearest branch. But wait. Stop. Don’t pass go. Do not collect two hundred dollars. Or, at least, not yet.

Business Acquistion Loans

Business acquisition loans are not the same as more traditional financing. There are a lot of elements for underwriters to consider, especially in comparison to what you went through in establishing your company initially. While your purpose, the amount desired and your credit history played a large role in securing start up capital, obtaining a loan for acquisition purposes requires a lot more information.

Underwriting Process

When it comes to acquisitions, most banks will want to see evidence of going concern, financial statements, verification of liquidity, and a credit history related to your current business venture. They will likely also want to see legal documents and agreements, the proposed ownership structure, and proof of the profitability of the company being sold. This process can be lengthy and complex, creating a different level of pressure. Furthermore, profitable businesses are often sold with a weighty amount of goodwill, or the excess of capital over the fair market value of the assets. Banks do not generally like to fund goodwill, making your own personal assets relevant to the underwriting process.

If you have found yourself facing a beneficial acquisition, hats off to you. Creating a new corporate structure or owning multiple businesses can be quite challenging, especially when it comes to financing. Be aware that the process of securing financing will be longer, more rigorous, and will require a large range of paperwork. However, with proper planning, organization and a great opportunity for growth, you can be well on your way to corporate success.