When buying a business opportunity that does not include commercial property, borrowers should realize that business loan options will be significantly different when compared to a business purchase that can be acquired with a commercial property loan. This problematic situation occurs because of the normal absence of commercial real estate as collateral for business financing when buying a business opportunity. In terms of arranging a fast business loan, efforts to buy a business opportunity are almost always described by commercial borrowers as excessively confusing and difficult.
The comments and suggestions in this report reflect business financing conditions that are frequently offered by substantial lenders willing to provide a business loan to buy a business opportunity throughout most of the United States. There are likely to be circumstances in which a seller will privately fund the acquisition of a business opportunity, and it is not our intent to address those business loan possibilities in this report.
BUSINESS OPPORTUNITY BUSINESS LOAN STRATEGIES:
Buying a Business Opportunity – Length of Business Financing to Anticipate
Business financing conditions to buy a business opportunity will frequently involve a reduced amortization period compared to commercial mortgage financing. A maximum term of ten years is typical, and the business loan is likely to require a commercial lease equal to the length of the loan.
BUSINESS OPPORTUNITY BUSINESS LOAN STRATEGIES:
Expected Interest Rate Costs for Buying a Business Opportunity
The likely range to buy a business opportunity is 11 to 12 percent in the present commercial loan interest rate circumstances. This is a reasonable level for business opportunity borrowing since it is not unusual for a commercial real estate loan to be in the 10-11 percent area. Because of the lack of commercial property for lender collateral in a small business opportunity transaction, the cost of a business loan to acquire a business is routinely higher than the cost of a commercial property loan.
BUSINESS OPPORTUNITY BUSINESS LOAN STRATEGIES:
Down Payment Expectations to Buy a Business Opportunity
A typical down payment for business financing to buy a business opportunity is 20 to 25 percent depending on the type of business and other relevant issues. Some financing from the seller will be viewed as helpful by a commercial lender, and seller financing might also decrease the business opportunity down payment requirement.
BUSINESS OPPORTUNITY BUSINESS LOAN STRATEGIES:
Refinancing Alternatives After Buying a Business Opportunity
A critical commercial loan term to expect when acquiring a business opportunity is that refinancing business opportunity financing will routinely be more problematic than the acquisition business loan. There are presently a few business financing programs being developed that are likely to improve future business refinancing alternatives. It is of critical importance to arrange the best terms when buying the business and not rely upon business opportunity refinancing possibilities until these new commercial financing options are finalized.
BUSINESS OPPORTUNITY BUSINESS LOAN STRATEGIES:
Buying a Business Opportunity – Lenders to Avoid
The selection of a commercial lender might be the most important phase of the business financing process for buying a business. An equally important task is avoiding lenders that are unable to finalize a commercial loan for buying a business.
By eliminating such problem lenders, business borrowers will also be in a better position to avoid many other business loan problems typically experienced when buying a business. The proactive approach to avoid problem lenders can have dual benefits because it will contribute to both the long-term financial condition of the business being acquired and the ultimate success of the commercial loan process.