Buying a Business — Understanding Small Business Financing

If you are interested in buying an already-established business, there are a number of ways that you can arrange for financing to keep your new business running smoothly.

Pay Cash

You can pay the entire amount upfront and purchase the business. However, this method will work only if you have the cash available.

Bank Loans

You can apply for a bank loan. You will normally be required to submit the previous 3 years' financial statements and perhaps some sort of collateral. You could contact the SBA (i.e. Small Business Administration), which is appointed by the Federal Government, to help you in securing a loan. The SBA would stand as guarantors for your loan.

However, getting a bank loan can be difficult without the proper documentation and collateral or guarantors.

Friends & Family

You could approach your friends and family for a loan. The interest rate will be reasonable and you would also not need any collateral or guarantor. However, paying off that loan is very important – if you want to continue to have good relationships with them.

Venture Capital

Venture Capitalists are people who will invest in your business if they see a potential for earning money out of it. However, they could take control of your small business if they become major shareholders.

Choosing a good venture capitalist is important – or you could end up with a ‘Vulture Capitalist', who will only try to take advantage of the fact that you are a new business owner.

Angel Investors

These are wealthy businesspeople or other individuals who have money and are willing to finance your business. They are similar to venture capitalists, but they usually give you a lower rate of interest and give you financing for a longer period of time.

Whichever way you get your business financed, ensure that your documentation is complete and you fully understand the terms and conditions of any papers that you are required to sign.

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