Financing The Purchase

The purchase of a business requires a certain amount of cash, depending on the size of the company. Sometimes the financing of the purchase is done primarily by the seller however the buyer must then provide equity in the form of a down-payment. Often the transaction must be financed by the buyer who will likely need an outside source of financing.

Lenders of outside sources of financing will usually require personal collateral for the loan. Personal collateral can include real estate, marketable securities and cash value of life insurance policies. Having a clear source of repayment, a good business plan and demonstrating good character are also viable ways of making the right impression on your potential lender.

It is important to be well prepared when applying for financing.  Make sure you are informed on both the questions you should ask and the information you need to bring.

There are many different types of financing that buyers can acquire, including term financing, revolving debt and unsecured debt. When asking lenders such as commercial banks or investments banks about financing, ask them to explain to you how their financing works including whether they have any loan conditions or will place any restrictions on your businesses activities.

An essential item to bring to any loan interview is a loan proposal. This should include information on the following:

  • Purpose of the loan
  • Amount required
  • Term desired
  • Source of repayment
  • Collateral available
  • Sources of repayment
  • History and nature of the business
  • Age, experience and education of management
  • Key advisors
  • Product
  • Market area and method of distribution
  • Major customers
  • Suppliers
  • Competition
  • Facilities
  • Employees and unions
  • Three years of business financial statements
  • Three years of business tax returns
  • Current personal financial statement
  • Business income statement, balance sheet and cash budget