Bad Credit Business Acquisition Loan

A business acquisition can be a great way to boost your business. However, they can often be potentially expensive. Because of this, you will often need to use a loan to get the money you need to pay for this. However, if you have a bad credit score the banks might be reluctant to lend to you. The good news is that there are alternative options that you might want to explore. Here’s everything you need to know to get a business acquisition loan with poor credit.

Why Use a Business Acquisition Loan?

Let’s start with the basics. A business acquisition loan is made to help you take control of an asset. In this case, you will be taking ownership of another business. This loan gives you the capital you need to acquire the company and incorporate its assets into your business. There are a few reasons why you might want to do this.

Sometimes, it will be as part of a franchise purchase. This will allow you to set up and run a franchise. This is appealing for a range of reasons. For example, you will have the support of an existing, larger business. There is a well-known brand name which comes with in-built customers.

At other times, the financing from this loan can allow you to acquire a smaller business. This might be a good way to neutralize a competitor. Alternatively, you might want to buy a business for its infrastructure and equipment.

Sometimes, this can be a good way of expanding your existing business. For example, you can buy a smaller, complementary business and rebrand it. This could give you another location, trained staff, and equipment.

Generally, these ideas share a common goal. By acquiring a new business, you will be able to secure a brighter future.

Types of Business Acquisition Loans

There are a few types of business loan options that you can explore. Each one has its own pros and cons. So, take your time to think through these options to find the one that will suit you best.

Bank Loans

You can try talking to a bank. They might be able to see the upside the target business will provide and approve the loan. But if you have a low credit score it will be harder to convince them. You might also face a higher interest rate. Furthermore, the approval process is slow and it might be months before the money arrives in your account. As a result, many business owners prefer to turn to alternative financing.

Unsecured or Secured Loans

First, you might want to consider taking out a business loan. There are two ways that you can do this. First, you might want to make an unsecured loan. This means that you won’t need to put up any collateral. This means that you won’t be at risk of losing any important equipment, but you will need to pay a higher interest rate. Also, you will likely become personally responsible for the loan if you default.

The other option to consider is a secured loan. This means that you will need to put up collateral, like a piece of equipment. This often attracts a lower interest rate, as there is less risk to the lender.

Equipment Loan

Sometimes, you will be interested in acquiring to get access to equipment that the target organization has. In this case, you might want to consider an equipment loan. The collateral for this type of loan is the equipment that you are purchasing.

Small Business Administration (SBA) Loans

These are government loans designed to support small businesses. Because of this, they can give you a decent amount of money for a reasonable interest rate. The only potential issue is that you will need to meet a set of minimum requirements. This means getting a FICO score of over 650. You also can’t have experienced bankruptcy in the last three years.

It should be noted that these usually aren’t available for start-up businesses. However, you might be able to apply if you can show that you are experienced in the area of business.

Microloan

If you don’t need a lot of money, you might want to consider getting a microloan. They have got this name because they do smaller loans, often under $50,000. Because of this, you will be able to go through the approval process faster. If you are interested in this option, you might want to check out the microloans offered by the SBA.

Things to Consider Before Applying for a Loan

There are lots of types of business loans available for you to choose from. Trying to choose the right one for you can be difficult. To make things easier, there are a few things that you should be looking for.

Length of the Loan

First, you’ll want to look at how long the loan will last. The longer the term, the lower the monthly payments will be. On the other hand, you will end up paying more in interest.

Interest Rate

One of the best ways of comparing loans is by looking at the interest rates that you will end up paying. Typically, because of your poor credit history, you will end up paying a higher interest rate.

Monthly Payments

The alternative funding lender should tell you how much you can expect to pay each month. If not, you might need to do some calculations yourself. You must know how much you will be paying. This will allow you to determine if you will be able to make repayments. If you can’t, you should talk to the lender. Most alternative financing providers will be willing to negotiate on terms to prevent potential defaults.

The Reputation of the Lender

The next thing to consider is how the alternative funding lender is viewed. You want to choose someone who has a good reputation. You can do this by looking at online reviews. This ensures that they will be trustworthy.

Required Documents

Finally, you want to talk with your alternative funding lender about the type of documents that they will require. Once you have filled out the paperwork, it will usually be a few days to a few weeks before you get the funding, depending on the type of loan you are getting.

What Determines Your Ability to Get a Business Acquisition Loan?

Typically, business acquisition loans will be more difficult to assess than regular loans. There are more elements that the loan assessor will need to consider. They might look at your personal history and your credit score. They might also look at your businesses’ credit score.

They will also look into the finances of the business that you are planning on taking over. This can mean diving into the quality of the balance sheets. This will allow them to see any debt that the business is holding. They can also look at past performance indicators to see how well the target business is doing.

Another aspect that they will consider is the business plan. This will tell them how you are planning on integrating the business with your existing operations. They might also look at any future projections that you have. This will give the lender an idea of how much value the acquisition is expected to unlock.

Finally, they might also look at any assets that you will be getting. This can tell them the kind of collateral that you will have. They might use this to tell them how much they will be able to loan you.

Because of these factors, you might still be able to get a business acquisition loan on favorable terms even if you have a bad credit score.

Increasing Your Odds of Getting a Business Acquisition Loan

If you are nervous about your loan getting rejected due to a bad credit score, there are a few things that you can do. First, you need to make sure that the balance sheets of both businesses are looking as strong as possible. Lenders will want to see businesses that have a lot of productive assets and minimal levels of debt. Sometimes, your business might not have this. But if the target company does, you will still be able to get favorable terms.

Another thing to focus on is the business plan. You want to emphasize why the acquisition is so important. Make sure that they know how you will be able to use it to increase the value of your business. If possible, include some projections for future growth. These figures can be a good way of illustrating how strong your business will be once the acquisition is complete.

Another good tactic is to make sure that you are including some collateral. Lenders prefer collateral because it reduces the amount of risk that they need to take. Additionally, you can reduce the amount of money that you are asking for. Both of these actions might be a good way of lowering the interest rates that you’ll need to pay.

Contact South Florida Funding Group

If you are looking for a business acquisition loan, you don’t need to let your bad credit score hold you back. There are lots of alternative financing options that you can explore. At South Florida Funding Group, we want to work with you to find the best option for your business. So, give us a call on 786-544-2700 to find more information about our services.