There are two well-traveled paths to entrepreneurship: starting a business from the ground up or acquiring an existing business. If you’re passionate about owning a business but don’t necessarily have the time, skillset, or desire to start from scratch, using a business acquisition loan to buy a company that’s already operating could make sense. In this article, we’ll explore what a business acquisition loan is and the various ways you can use it to turn your dreams of entrepreneurship into reality.

What is a business acquisition loan?

A business acquisition loan, also called a business purchase loan, is a commercial loan designed to help someone buy an existing business. This type of loan can help someone cover costs associated with buying and running the operation, which may include:

  • Purchasing the business assets or equipment
  • Buying real estate
  • Transferring business ownership
  • Buying out a business partner or buying into a partnership
  • Opening a franchise
  • Consolidating existing business debt
  • Covering operating costs and meeting cash flow needs

You can generally find business acquisition loans offered by:

  1. Banks or credit unions: If you prefer to bank in person, a local bank or credit union may be able to fund a business acquisition loan. This type of lender generally has a longer application process and may take more time to render a decision. Note that some banks may offer Small Business Administration (SBA) loans, which tend to have higher loan amounts and lengthier loan terms since they’re partially backed by the government.
  2. Online lenders: Online lenders tend to offer quick application processes and may be able to fund loans faster once approved. You can generally prequalify with multiple lenders without impacting your credit score. This way, you can compare rates and loan terms before you apply.

Ways to use a business acquisition loan

There are several ways you can use a business acquisition loan, including:

Purchase a business outright

If you have your eye on a particular type of business you want to buy, like a laundromat or restaurant, you can keep your eye on the local market and look for owners that want to sell. As you go through due diligence and examine the company’s books, you may want to work alongside a professional who can help you do a formal business valuation. Someone experienced in buying and selling businesses can also help you understand the local market conditions and future earning potential for the type of business you want to buy.

Open a franchise

A franchise business has the backing of a larger corporate entity for which you can use the name and branding to establish yourself quickly. Many fast-food restaurants and home service businesses use a franchising model. While a franchise can guide you on how to run the business, you’ll pay for it. Depending on your franchise agreement, you might pay a one-time fee or ongoing royalty payments that are a percentage of revenue.

Buy out a business partner

If you’re already a partial business owner and you’re ready to strike out on your own, a business acquisition loan can help you buy out your business partner. Whether your partner is retiring, or you’ve hit an insurmountable disagreement, having funding available via an acquisition loan can help your business move forward with minimal disruption. It’s important that you consult a business attorney to ensure your partnership buyout is done by the books and is aligned with your existing contract.

The future ahead

A business acquisition loan is a flexible loan that can help you achieve your entrepreneurial goals. Whether you want to start a business from scratch or acquire a thriving business, it makes sense to explore all available financing options. When in doubt, loop in a professional who can help you make the best next step based on your personal and professional goals.