Although risky, there’s a lot to be gained by acquiring other companies. Outside of the possibility for financial gain, you also gain the opportunity to add new skills, new expertise and new perspective to your business portfolio. Financing a business acquisition can be a little tricky, but here are 10 different ways you can move forward in business acquisition financing.
It’s very rare that a company has the capital immediately ready to buy a business in cash; however, even if you do, it may not be a good idea to use of the company’s money up front. Business acquisitions are risky and there are other options available that pose much lower risks.
If you’re merging company’s to create a new identity, company equity is a great way to finance the merge. You’re able to keep your cash, retain the seller’s expertise and boost the morale of staff during the transition.
If the seller was already considering selling or leaving the company, or even retiring and is flexible on the payment terms, earnouts are a fantastic option for them to continue receiving benefits (revenue) from the company as they are phased out. A percentage would be paid up front with an agreed upon percentage being paid out yearly, for a set number of years, based on the company’s revenue for that year.
- Leveraged Buyouts (LBOs)
LBOs revolve around the leverage of the company’s debts in which the buyer leverages the debts against the assets of the business being purchased. The buyer is then responsible for the debt.
- Traditional Loan
Traditional loans a very common in business acquisition financing, they typically come with specific acquisition restrictions (e.g., time limits) so shop around and read the terms carefully.
- SBA Loans
SBA-backed loans guarantee a portion of the loan to the lender. Because of this they carry low interest rates and are extremely competitive.
- Asset-Based Loans
Asset-based loans are financed based on the liquidity of the company’s assets.
Issuing bonds is a very complicated process that forces the seller to have a very thorough plan in place in order to pay off the debt. There is an incredible amount of technicality involved in this form of financing, it would be best to consult with a professional.
Getting involved with another firm both lowers the purchasing burden and adds additional skills, experience and talent to your new venture.
- Third-Party Financing
Although third-party financing companies will likely be interested in investing for equity in the company or they will require collateral, there are a lot of third-party financing options available.
When looking into business acquisition financing make sure you remember to consider the costs beyond the acquisition. Carefully outline and review your goals to make sure you have enough financing to cover the costs of operations.
For more information on business acquisition financing, contact Overhead Capital Ltd. today.