Financing Your Dream: Strategies for Securing Funds to Buy a Business in Cleveland

For those considering whether buying an existing business is right for them, it’s important to understand that it can be an exciting and rewarding journey. However, it’s not as simple as just paying with cash. Successful acquisition of a business requires substantial funding. Fortunately, there are various ways to obtain the necessary funds. That’s why it’s crucial to determine how much you need and explore your options for securing financing.

How Much Does It Cost to Acquire a Business in Cleveland?

The cost of purchasing a business can vary dramatically depending on factors like size of the business, potential, historical performance, brand recognition, and more. Generally speaking, the way to determine how much you will need in order to buy a business will be summing together the professional valuation of the business along with any working capital or CapEx (property, land, equipment, etc.).

To see what you can actually afford, it’s worth noting that many financers require you to front a minimum of 10% of the total cost. This is known as an equity injection. Therefore, it’s not uncommon for a person who can afford to put in $100,000 of their own funds to be able to make a purchase of a business worth $1,000,000. While there are financing options that may not require as much of a contribution, keeping this in mind as a rule of thumb when looking at the business you wish to purchase is helpful.

3 Common Financing Options for Purchasing a Business in Cleveland

With the overarching formula for anticipating the cost of a purchase along with how to determine what you can afford covered, it’s time to look at the most common financing options. Most aspiring business owners turn to three potential options:

1. SBA 7(a) Loan: The 7(a) loan program is the primary loan program that the U.S. Small Business Administration (SBA) offers to provide financial assistance with small business acquisitions. The maximum loan amount for a 7(a) loan is $5 million and to qualify the existing business must be operational, operate for profit, be within the U.S., and must be creditworthy and in compliance with the SBA.
2. Seller Financing: With seller financing, a buyer must often put down 30%-60% of the purchase price for the business, with the rest being fulfilled via seller financing. This form of financing works in conjunction with traditional lenders along with other sources for long-term repayment. A purchase agreement must be drafted along with a promissory note outlining the amount of the loan and the repayment terms for seller financing to be valid.
3. Business Acquisition Loan: Finally, a business acquisition loan is another method of financing a business purchase. These are also offered by the SBA along with other lenders such as banks and occasionally credit unions. Equipment financing, startup loans, term loans, and SBA loans all fall under the umbrella of a business acquisition loan. Terms can range as long as 25 years on some business acquisition loans, making them a relatively affordable option for those who can qualify with strong credit.

Finance Your Cleveland Business Acquisition Today

Navigating the nuances of business acquisition financing can be extremely challenging. After all, you as a potential buyer already have plenty on your plate to contend with during the process. Business brokers such as ourselves at Sunbelt Business Brokers of Cleveland can help walk you through each option along with the unique pros and cons given your personal situation. Don’t hesitate to reach out to learn more about each option and for help finding your dream business.