How to Get Finance to Buy a Business

Buying an existing business is a quick way to enter (or grow in) a particular market. However, this usually isn’t possible without funding. This can pose a problem, especially considering the UK’s current recession.

If you fill in our free quote tool, we can match you with trusted business loan providers. They’ll then send you custom quotes so you can choose the best deal.

Feel intrigued but want to know more? Just stick around. In this article, we’ll cover some of your funding options. From traditional bank loans to alternatives such as peer to peer lending, we got you covered.

Advantages of purchasing an existing business

It’s fair to ask yourself why buying an existing business is a good call in the first place. While trying to get a startup off the ground has its benefits, by acquiring an already up-and-running company, you’ll inherit assets such as:

  • Functional working model
  • Experienced employees
  • Established customer base
  • Pre-existing networks
  • Trusted brand and reputation
  • Good credit score

This last one is really important, as this score can potentially help you secure a loan to buy the business in question.

Note

Good credit ratings are particularly important during the current recession in the UK, as reported by credit analysts S&P Global. With the subsequent rise of interest rates by the Bank of England, you’ll need to be extra diligent to find the best business loan option

What to include when you apply for a business loan

The list of documents required when applying for a business loan varies depending on the lender. However, the most common ones – and therefore the ones you must have at hand – are:

  • Business plan
  • Business and personal bank statements (usually from the last 2 years)
  • Business and personal financial details
  • Revenue statements (also called profit and loss statements)
  • Balance sheets
  • Business and personal tax returns records
  • Personal credit score
  • Collateral information
  • Personal guarantee

What should a business plan include?

You raise your chances to score a loan if you present a sound business plan. Even though some lenders don’t require it, it’s a good tool to bring focus to your business vision. It can also help convey your strategy while showcasing you and your company (a win-win). By default, a business plan should include:

  • Executive summary
  • Business description
  • Market research
  • Business strategy and execution
  • Organisational structure
  • Financial forecast
Tip

If you’re still in doubt about what to include, you can find several templates online to build upon, such as this one from The Prince’s Trust.

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Funding options

There are many funding options available to potential business owners in the 21st century, meaning there is far more support, both financial and advisory, for potential purchasers. Each funding method has its own advantages and disadvantages and there is great variety even within each option. It therefore pays to research your options thoroughly in order to get the best deal. Some options include:

  • Secured business loans
  • Unsecured business loans
  • Crowdfunding and peer to peer lending

Secured business loans

Secured business loans are those backed by a personal guarantee or assets being put up as liability in order to protect the financier from the higher degree of risk. The latter option, also called asset value loan, usually requires property, equipment, machinery, or land, either private or commercial, to be submitted as collateral. Because of the risk reduction this brings to the lender, you have higher chances of securing a loan. It also allows you to borrow a larger amount for a longer term, with better interest rates.

Note

One important form of secured business loans is the commercial mortgage. It’s designed for business property purchases and the property you’re buying is set up as a collateral. They usually offer amounts starting from £25,000 and can be repaid between two and 25 years

Unsecured business loans

Unlike their secured counterpart, unsecured business loans are a way of borrowing that don’t require a personal guarantee or a collateral. As no assets need to be inspected or valued, they’re quicker to arrange, which means you can access the funds promptly (sometimes even in the same business day). However, they come with higher interest rates. Also, because financiers take on a higher risk, they’re more likely to lend lower amounts for shorter terms.

Crowdfunding and peer to peer lending

Crowdfunding and peer to peer lending are more accessible alternatives to the high street bank loans. Funds can be accessed through one or many investors, and terms and conditions can be tailored to suit most needs. Rates will largely depend on the risk to the lender, so it is essential that you present your business plan in the most thorough way possible.

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Business loans providers

As previously mentioned, there are many options available to those who wish to seek out funding in order to purchase an existing business, but not all are reputable. There is also the fact that each funding method, provider and loan itself is unique to the situation and the business accessing it. While all these things need to be taken into consideration, the following are some of the most renowned within the industry:

Funding Circle

Funding Circle is one of the largest peer-to-peer lending providers in the world. Through it, loan values account for all types of necessities, including the purchase of existing businesses. With no early repayment penalties, they are also one of the least restrictive.

Lloyds Bank

Lloyds are one of the largest banking entities in the world, making them one of the most trusted in regards to business funding. They currently allow you to borrow from them even without maintaining a business account with them, which is something worth looking into if you already have a business account set up with another bank.

Next steps

Considering the advantages of purchasing an existing business and the likely need of funding for that, a business loan is definitely something worth looking into.

On that note, it’d be wise to compare quotes from financiers. A quick way to do that is to fill in our free comparison tool. You’ll be matched with the lenders most suited to your needs and then be sent custom quotes by them.

FAQs

Can I finance the purchase of a business?
Yes, you can. Depending on the amount needed, you have many options available to you, such as secured loans, unsecured loans, and crowdfunding.
What's the process of buying an existing business?
The process of buying a business can roughly be broken down into these steps:

  • Finding a business to buy
  • Valuing the business
  • Brokering a purchase deal
  • Submit a letter of intent
  • Perform due diligence
  • Secure funding for the purchase
  • Finish the deal
How can I compare business loans?
The best way to compare business loans is by taking a look at bespoke quotes. You can do that if you fill in our free quote tool.

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Written by:
Lucas Pistilli author headshot photo
Lucas is a Brazilian-born journalist and Expert Market’s go-to writer for all things EPOS systems, merchant accounts, and franking machines. Having covered business, politics and technology for many years, he’s driven by his passion for the written word and his goal to help people make well-informed decisions.