Get a business loan to buy an existing business: A how-to guide
Are you looking to buy an existing business? And need some guidance on next steps and how to proceed? You’re in the right place.
Chances are you might need a business loan to buy an existing business. Here’s a list of the top things to consider before you proceed:
Review the business’s financials
Use a professional, such as your accountant, financial and/or legal adviser, to review the business’s financial position. Look at financial statements and tax returns from the past 5-10 years, or for as long as the business has been operating for. Watch out for key business performance indicators such as cash flow, debt, revenue and profit growth.
Also, understand the reasons why the current owner wants to sell the business. Are there any red flags?
Do market research
What does the current market landscape look like? Who is your competition and how is the business performing compared to them? Does the business have a strong moat? What are the opportunities for growth?
A reliable model to follow is the SWOT analysis. It helps you to strategically analyse a business’s strengths, weaknesses, opportunities and risks. It can also be beneficial to ask industry leaders and experts to help you conduct this analysis.
Get a feel for the business
First impressions do matter. So, make sure to visit the business (if it has a physical presence). Understand how things are being run, the processes in place, the venue, how employees feel about working there.
Understand customer satisfaction
Another good indicator whether a business is doing well or not is customer satisfaction. Find out about what people are saying about the business both online and offline. Chat to existing and past customers to understand if they are happy with their experience and what the business could do better.
Conduct an employee audit
An important aspect of reviewing a business’s current performance is looking at its current staff by conducting an employee audit.
This can help you find out some important information such as: How many employees are currently employed? What is the staff turnover rate? How much has the team been growing over the past few months/ years? What are the working conditions like and are employees happy? What are the gaps, positions, that need to be filled?
Do a full legal and compliance check
It’s important to get the right expert help for this important step, unless you are a legal and compliance professional yourself. Apart from a business’s financials, legal & compliance can be one of the biggest risks to a business.
This process is all about ensuring that the existing business you want to buy is compliant with any relevant laws and regulations. And more importantly, that it’s not in breach of any laws that could lead to legal actions and significant financial and reputational damages.
Once you have dotted all the i’s and crossed all the t’s, and you feel confident in the business’s future profitability, you can start looking at business funding options.
Most likely you might need to get a business loan to buy an existing business, unless you have other equity or assets to leverage. Make sure you discuss finance options with your financial adviser and accountant.
If you choose to proceed with a business loan, here are three simple steps on how to get a business loan to buy an existing business:
1. Find a lender that suits your needs
Nowadays there are many business lenders in the market. From traditional banks to online lenders and marketplaces. New technology has also advanced the business lending process immensely. So, depending on what lender you pick, you could potentially receive an outcome of your loan application within hours and receive the funds on the same business day. This is specifically the case for modern online lenders like Lumi. It might sound too good to be true, but it’s reality.
Whatever type of lender you choose, make sure that it fits your business’s unique needs.
Look at factors such as:
- Lending criteria: What requirements does the lender have for providing a business loan
- Fees: What are the interest rates and are there any other fees or charges?
- Lending terms: What are the repayment terms and how much flexibility does the lender offer?
- Loan offering: What loans do they offer? Which of their business loans would be suitable to buy an existing business?
- Application process: How easy or difficult is it to apply for the loan? Can it be done online or do you have to apply in person?
- Loan assessment & processing of funds: How long does it take for the lender to process your loan application and provide access to funds?
- Reputation: What’s the lender’s reputation and are customers happy?
Once you have chosen your lender of trust, discuss with them what the right business loan option would be and start preparing your loan application documents.
2. Prepare your loan application
When buying an existing business, you might need some or all of the following documents for your business loan application:
- Current balance sheet of the business
- Tax returns of the business from the last two years
- Information about your qualifications for running the business
- Details about your personal assets and liabilities
- Details about any equity or deposit you might want to invest in the business
- Forecasts of expected profit and loss as well as cash flow for the first two years
3. Apply for the business loan
You’ve picked your lender and loan type. You’ve prepared all the required documents, now it’s time to apply and get the funds to buy that existing business.
Lumi’s business loan application is all online and usually only takes a few minutes to complete. You can directly upload all of your documents and securely connect your bank account. We normally process loan applications within a few hours, provided that all the necessary information was provided. Funds can be processed on the same business day. You can apply here.
Our minimum requirements are straightforward:
- Minimum 6 months in business
- Minimum $5K monthly turnover
- Active ABN/ACN
