Business Loan Strategies to Buy a Business Opportunity

Buying a business opportunity is likely to be an extremely challenging task when arranging the business loan. This is largely due to the usual lack of commercial property as collateral for the business financing to buy a business opportunity. When buying a business that does not include commercial real estate, business borrowers need to realize that business loan options will be greatly reduced in comparison to a business purchase that can be financed with a commercial mortgage.

The suggestions and advice in this commentary build upon commercial loan covenants that are commonly provided by commercial lenders willing to offer commercial financing throughout much of the United States for buying a business opportunity. There will often be various private financing scenarios in which the seller might be willing to wholly finance a business opportunity acquisition, and we will not attempt to discuss those commercial loan possibilities in this commentary.

BUSINESS OPPORTUNITY BUSINESS LOAN SOLUTIONS:
Down Payment Expectations to Buy a Business Opportunity

Although there will be variations based on the type of business and several other factors, a common down payment requirement for a commercial loan to buy a small business opportunity is 20-25 percent. The presence of seller financing might lessen the down payment needed to acquire a small business opportunity.

BUSINESS OPPORTUNITY BUSINESS LOAN SOLUTIONS:
Buying a Business Opportunity - Appropriate Interest Rate Expectations

Commercial borrowers should anticipate business financing interest rates in the range of 11-12 percent to buy a business opportunity in the current interest rate climate. Because a rate of 10-11 percent is currently normal for commercial real estate financing, the rate for business opportunity borrowing should be viewed as quite reasonable. The commercial loan interest rate cost to purchase a small business opportunity is typically higher than the cost of a commercial real estate loan due to the absence of business property for collateral in a business opportunity purchase.

BUSINESS OPPORTUNITY BUSINESS LOAN SOLUTIONS:
Business Loan to Buy a Business Opportunity - Length of Loan

When purchasing a business opportunity, commercial loan terms will almost always include a reduced amortization period in comparison to a commercial real estate loan. A business loan term of ten years is normal, and that length of loan is likely to be tied to a requirement that the commercial lease will not expire before the loan matures.

BUSINESS OPPORTUNITY BUSINESS LOAN SOLUTIONS:
Buying a Business Opportunity - Refinancing Options

A related business loan issue to anticipate when buying a business is that refinancing the business opportunity loan terms will normally be even more difficult than the original business financing. There are currently some new business loan programs in the final stages of development that could dramatically improve future refinancing options. But until these new business financing options are finalized, it is important to arrange the best possible terms initially and not depend upon refinancing possibilities.

BUSINESS OPPORTUNITY BUSINESS LOAN SOLUTIONS:
Avoiding Problem Lenders When Buying a Business Opportunity

Perhaps the most important phase of the business loan process for buying a business opportunity is the selection of a commercial lender. In our view an even more critical stage of this process is avoiding certain lenders that are routinely unsuccessful in finalizing a business loan to buy 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.