Finding the finance to buy an established business can be just as complicated as funding an entrepreneurial vision from scratch.
It’s likely that you might need more capital to buy an established business than you would need to find the seed funding for a start-up, so your business funding options may be more limited. An unsecured business loan to buy a business is one possible source of funding, and it has pros and cons when compared to other finance lines such as commercial mortgages, crowd funding or venture capital.
Obviously if you’re buying a physical bricks and mortar business, such as a guest house or a nursery, that comes with the freehold to a property, or expensive or long-running leasehold then you will need more capital, and a different source of funding such as a commercial mortgage may be more viable. If the venture that you are thinking of buying is asset-rich then the assets themselves might provide suitable security, either through a secured loan or asset finance
But an unsecured business loan could be suitable for buying a whole range of other businesses from retailers to marketing agencies, and if you seek funding from an alternative finance provider rather than a high street bank you might be surprised by the buying power you have within your reach.
Although business finance has become more accessible in recent years, the type of funding you can access is nowhere near pre-recession levels, and the big high-street lenders can still be inflexible and determined to stick within a rigid criteria.
Why buy a business with an unsecured business loan?
The advantages of buying a business with an unsecured business loan, as opposed to other types of finance are that there will be no complications in terms of ownership or third-party involvement, which there could be if you opted for venture capital or even peer to peer lending and crowd funding.
The downside of getting an unsecured business loan to buy a business is that it can be more difficult to raise large sums of money – lenders have to have faith in the business, your ability to take it forward and ultimately, without any security, your creditworthiness too.
How can you improve your chances of getting an unsecured business loan to buy a business?
Firstly, you need to be very clued-up on the ins and outs of the business you are hoping to buy. How much profit – or even loss – was it making under its previous ownership? Was it reaching its potential and its previous owners are just looking to explore new avenues, or did it have major room for growth? Bear in mind that the figures and projections that you see when the business is for sale are going to be highly rose-tinted, and any finance provider will be heavily scrutinising the numbers so you will need independent accountancy or valuation advice before you seek business finance.
Build a solid business plan just as you would if you were establishing a business from scratch. An unsecured business loan relies on a leap of faith, so you need to present a convincing case for how you are either going to build on the success that someone else has attained, or if you have a venture with a mediocre performance record in your sights, you need to, basically, be able to prove that you can do it better!
With that in mind, as well as solid figures and projections, and a clear vision, you have to sell yourself and your skills and experience if you want to have a chance of obtaining a loan to buy a business. If the previous owners had made the business a roaring success then you have to show a financier how your aptitude is as good as theirs – particularly if you are looking at a very hands-on or customer-centric venture. And if the business that you want to buy with an unsecured loan is not as profitable as it could be, you need to show how you have the know-how to give it a new lease of life.
Finally, to get an unsecured business loan, your own finances will need to be in order. At Access, we excel at finding solutions in difficult situations, so it is always worth having a chat to us, whatever your financial standing.
It is also worth noting though that unsecured business loans do rely on your creditworthiness and ability to repay, to a certain extent. The better your credit rating, the more you are likely to be able to borrow on an unsecured basis, and often buying a business will require a sizeable sum, so do what you can to make sure your financial dealings stand up to scrutiny.
If you do have your heart set on a particular business though, and you have the skills and expertise to take the venture forward, but you don’t have an impeccable financial past, talk to us anyway – if an unsecured business loan is an unsuitable option, we can always look at other sources of finance such as a commercial mortgage, venture capital or asset finance.
