Financing A Business Purchase – What Are Your Options?

Financing a business purchase, or getting cash for a down payment can take many forms. Hopefully the options listed below will give you some ideas where you can find the money to buy a business!

Credit Cards - any buyers these days are tapping their credit cards for their down payment to buy a business. The downside of this option is that if you are getting an SBA loan to buy a business, they won't let you use "a credit card/loan – borrowed money" for the down payment. Other than that this option works for many since there is no waiting for the money or cumbersome approval process.

SBA Loans – Many businesses today are purchased with 7A SBA loans. There are conditions however in getting one to buy a small business. You still have to put down between 15%-30% depending on the lender, you must have good to excellent credit, and the business has to have PROVABLE cash flow to support the debt service of the loan. The loans are typically 10 years in duration and 2-3 points above the prime interest rate. For more information on SBA Loans to purchase a business go to: www.bizbuyfinancing.com for more tips and ideas.

Home Equity – With home equity growing rapidly in California many buyers utilize these funds to either buy a business or utilize it for a down payment. At this time rates are low and lenders are eager to give out home equity loans. Loans can usually be secured rather rapidly, but plan ahead and get the process moving so you don't miss out on any great businesses that come out on the market for sale.

Owner Financing – This is the most common form of financing. Usually the buyer will put down 20% - 50% (utilizing one of the methods above), and the owner will carry back a note for a duration of usually two to ten years. Interest rates vary but they usually will be higher than banks or commercial resources. Sometimes there will be "combo" financing with the owner taking back a partial note and the rest of the financing will come from the above resources.

Retirement Plans – Many buyers have built up sizeable amounts in their work 401K plans. There is a way to tap this money tax free – put it into a "special trust" that then buys the business for you. Many corporate refuges/individuals coming out of corporate America are going this route. Buying a business using your 401k is risky but if it pays off can be well worth it.

Note Buy Out Firms – There are companies and individuals who buy notes sellers have taken back. Get your possible deal in front of these individuals to see if they would be interested in buying out the note after you have completed the deal – this may sway some sellers who want all cash for their deal and don't know about this creative financing option!

They key to all this is to be creative - possible tapping several of these sources to get your deal done. With all these resources along with cash in the bank and possible some relatives who may want to invest in your new business – you should have no problems with the financing end of buying a business!