Business Financing Terms to Buy a Business Opportunity

by Stephen A. Bush

When buying a business opportunity that does not include commercial property, borrowers should realize that commercial loan options will be significantly different when compared to a business purchase that can be acquired with a commercial property loan. This problematic situation occurs because of the normal absence of commercial real estate as collateral for the commercial financing when buying a business opportunity. In terms of arranging the business financing, efforts to buy a business opportunity are almost always described by commercial borrowers as excessively confusing and difficult.

The comments and suggestions in this report reflect business financing conditions that are frequently offered by substantial lenders willing to provide a business loan to buy a business opportunity throughout most of the United States. There are likely to be circumstances in which a seller will privately fund the acquisition of a business opportunity, and it is not our intent to address those business loan possibilities in this report.

AEX Business Opportunity Financing -
Down Payment Expectations to Buy a Business Opportunity

Although there will be variations based on the type of business and several other factors, a common down payment requirement for a commercial loan to buy a small business opportunity is 20-25 percent. The presence of seller financing might lessen the down payment needed to acquire a small business opportunity.

AEX Business Opportunity Financing -
Likely Interest Rates to Buy a Business Opportunity

In the current business loan interest rate environment, the likely range for buying a business opportunity is 11 to 12 percent. To put this in perspective, it is not unusual for a commercial mortgage to be in the 10 to 11 percent range. The cost of business financing to buy a business is routinely higher than the cost of a commercial mortgage due to the lack of commercial property for lender collateral in a business opportunity transaction.

AEX Business Opportunity Financing -
Buying a Business Opportunity - Length of Business Financing to Anticipate

Business financing conditions to buy a business opportunity will frequently involve a reduced amortization period compared to commercial mortgage financing. A maximum term of ten years is typical, and the business loan is likely to require a commercial lease equal to the length of the loan.

AEX Business Opportunity Financing -
Buying a Business Opportunity - Refinancing Options

An important business financing factor to include in planning efforts when purchasing business opportunities is that refinancing the business opportunity financing conditions will typically be harder to deal with than the initial commercial loan. There are several new working capital loan programs under development that could significantly change future choices for business opportunity refinancing. Until these new business opportunity financing alternatives are available, it is advisable to obtain the best financing terms when the business is initially acquired and not rely upon future refinancing choices.

AEX Business Opportunity Financing -
Avoiding Problem Lenders When Buying a Business Opportunity

The selection of a commercial lender might be the most important phase of the business financing process for buying a business. An equally important task is avoiding lenders that are unable to finalize a commercial loan for buying a business.

By avoiding such lenders, commercial borrowers are likely to avoid many other business financing problems frequently associated with buying a business opportunity. Avoiding problem lenders will be instrumental to the eventual success of both the business loan process and the long-term financial health of the business being acquired.