There is nothing worse for both buyers and vendors when a deal is agreed but not complete due to a lack of finances. There are several factors to consider when assessing which form of finance you will use in your next business acquisition. These include:
- What are you prepared to risk: what equity or security will you put on the line?
- What is your experience like and is it relevant to the company you are considering buying?
- What will be the businesses’ ability to service the debt once acquired?
- What will the debt-to-equity ratio be once the business is acquired?
- Generally speaking, the funding available to you, is related to the businesses you are wanting to acquire. As a result of this, you cannot make an offer without the lenders looking at it first. Below are the ‘usual’ financial options when it comes to business acquisitions.
What are the financial options?
Asset finance – This finance option is good if the company you are seeking to buy has significant assets. In plain terms, this is a loan against the assets of the business. Therefore, ownership of the assets is transferred to the lender until the finance is paid back. This is a sense of security. As a result of this security, the interest rates are relatively low.
Bridging loans – These are considered to be more short-term, usually a matter of days, weeks or a month. These loans may have fixed or unfixed payment dates.
Invoice Financing – This is a great means of giving liquidity to grow. Once you have secured the lending, the main difference is that your lender will pay out agreed proportion of invoices you issue and, for that, they will take fees.
Trade Finance – This type of loan enables a company to be paid on agreement of dispatch. This type of loan also helps protect against the risk of international transactions rather than specifically assisting you with the acquisition. If your company deals with international trade, this is a good option of finance.
Unsecured Business Loans – These types of loans are good funding options for those companies without many assets or for those businesses who do not prefer a sense of security. The loans are often small, however, if you have a good personal credit score, it is worth considering this financial option.
Secured Business Loans – These types of loans are generally larger than unsecured loans and often have lower interest rates. However, the payoff is that you have offered security and therefore, there is more pressure on you to repay.
If you thinking of obtaining a loan make sure you have a loan agreement in place.
Commercial Property Finance – Most commercial buyers tend to stay clear of buying properties in practice. However, the benefits of doing so can enable this finance option which allows taking finance on against the building to raise capital for the business purchase.
Monarch Solicitors specialist Mergers & Acquisitions Solicitors provide a tailor-made approach to your needs and give professional, practical and cost-effective advice to your intended proceedings. Please contact us by either calling 0330 127 8888 or emailing [email protected] for an initial consultation.