How to Finance Buying a Business

It is important to understand the ways to finance buying a business so you can determine the size of business you’re capable of buying.

It can be very difficult to get a bank loan for all the money you will need to buy a business. Banks need collateral and many businesses do not have the tangible assets that translate into collateral. Another option is to combine bank financing with seller financing. Be aware that the seller will probably not agree to finance you unless he or she sees that you are capable of turning a profit with the business.

You can also try to buy the business on an earn-out basis, where some or even most of the purchase price is paid in the future, depending on certain targets being reached.

Many buyers assume that they can finance buying a business with a small down payment, just as they do when purchasing property. Buying a business is different. There are no rules about the size of down payments but it’s advisable to have at least 30 to 50% of the purchase price in cash, with the balance financed by the banks and/or the seller.