Business
Acquisition Loans

In simplest terms, a business acquisition loan is funding from a bank to help you purchase a business. Buying a business often takes more capital than entrepreneurs have on hand, which is where banks like Live Oak can help. Lenders have varying requirements, but it’s essential to have a solid business plan, strong personal credit and a passionate, entrepreneurial spirit.

Loan Amount
$500,000-$5 million +

Loan Term
10-25 years

Funding Timeline
60 days on average, depending on customer readiness and real estate involvement

Interest Rate
The prime rate plus a lender percentage

Preparing for Ownership

Before you approach a bank for acquisition financing, take time to prepare, research and put together a thorough business plan. Your business plan not only proves to the bank that you’ve considered every aspect of owning a business, but it will serve as your roadmap. Check out our video to learn more about the critical elements of a successful business plan.

The Acquisition Process

There are multiple steps involved in purchasing a business. Remember that acquisition is simply a more formal banking term we use when discussing the purchase of a business.

With Live Oak, you get a partner who believes in your success and is willing to take the journey alongside you. Here’s the process we’ll take together:

Gather Your Team
Before you embark on an acquisition, it’s wise to have a team of trusted advisors, including a CPA and an attorney. They should have prior experience in acquisition financing.

Explore Financing Options
Lenders who understand the unique aspects of a business will be able to structure the loan to benefit both the buyer and seller.

Determine the Purchase Price/Deal Structure
Agreeing on the purchase price is a fundamental step that should occur early in the process. The purchase price should be based on a combination of asset values, annual revenues, multiples of earnings and other intangible assets.

Sign a Letter of Intent
Sellers often require the buyer to sign a letter of intent, which is an agreement that prohibits the seller from negotiating with other potential buyers.

Secure Financing
A lender will look at the buyer’s personal credit in addition to the financials of the business. How someone manages their personal credit is typically a strong indicator of how they will handle the business’s credit.

Financials
The lender will ask for the following requirements from the buyer:

  1. Three years of business tax returns
  2. Year-to-date (YTD) income statement and current balance sheet
  3. Comparable income statement and balance sheet from previous year
  4. Projections for at least the first three years under new ownership

Due Diligence
As you navigate through the due diligence period, this is the time where the serious research and analysis happens. Make observations and inquiries related to historical financials, business tax returns, customer/client lists, pipeline, marketing and much more.

Close the Deal
At this point, the deal is complete and there is no room for further negotiations. There’s a fairly robust closing checklist that the buyer will need to complete before closing the sale.

Guide to Buying a Business

As acquisition loan experts, we know what a successful ownership transition entails. Our “Guide to Buying a Business” offers a comprehensive look at what is involved when it comes to a business acquisition.

Download Guide

There are several factors at play that create a favorable environment for buying a business. From CARES Act incentives to low interest rates, plus the growth potential and glut of Baby Boomers eager to sell, many buyers are seizing the moment and pursuing a purchase.

FAQs

  • What is a business acquisition loan?

    In simplest terms, an acquisition loan is funding to purchase an existing business or a franchise. Buying a
    business often takes more capital than entrepreneurs have on hand, which is where banks like Live Oak can
    help. Lenders have varying requirements, so it’s important to have a solid business plan, strong personal credit and a passionate, entrepreneurial spirit. A business acquisition loan would work if you want to:

    • Bypass the start-up stage and buy a business that’s established and successful
    • Acquire competition to grow your existing business
    • Open a franchise location of an established company
    • Buy out your partner(s) in your current business
  • What is the term and rate on my acquisition loan?

    This depends on which loan product works best for you and your business. SBA loan terms and interest rates vary based on the specific product. In general, SBA rates are some of the most competitive on the market. However, loan rates fluctuate so it’s best to speak with one of Live Oak’s lenders to determine what your interest rate will be. For an SBA 7(a) loan, interest rates are the prime rate which is determined by the Federal Reserve and adjusted on a quarterly basis, plus a lender percentage which is calculated depending on the loan amount and the loan term. Our lending team will gladly walk you through any questions you may have about specific interest rates, depending on the unique needs of your business.

  • How much of a down payment is required for my acquisition loan?

    Similar to the specific terms and rates we discussed above, the exact down payment amount will vary depending on your loan. It’s safe to assume that a minimum of 10% of the project amount will be required from the borrower but discuss the specifics with your lender.

  • What is the acquisition loan process?

    There are multiple steps involved in purchasing a business. With Live Oak, you get a partner who believes in your success, and is willing to take the journey alongside you. Here’s the process we’ll take together:

    1. Gather Your Team
      Before you embark on an acquisition, it’s wise to have a team of trusted advisors, including a CPA and an attorney. It’s advisable that they have prior experience in acquisition financing.
    2. Explore Financing Options
      Lenders who understand the unique aspects of a business will be able to structure the loan to best benefit both the buyer and seller.
    3. Determine the Purchase Price/Deal Structure
      Agreeing on the purchase price is a fundamental step that should occur early in the process. The purchase price should be based on a combination of asset values, annual revenues, multiples of earnings and other intangible assets. The building, land, equipment and furniture will constitute the tangible assets.
    4. Sign a Letter of Intent
      Sellers often require the buyer to sign a letter of intent, which is an agreement that prohibits the seller from negotiating with other potential buyers. It also prohibits the buyer from discussing any details of the business to outsiders.
    5. Secure Financing
      A lender will look at the buyer’s personal credit in addition to the financials of the business. How someone manages his or her personal credit is typically a strong indicator of how he or she will manage the business’s credit. When preparing for financing, the buyer should take steps to protect personal credit and avoid making any purchases that will affect his or her credit score.
    6. Financials
      The lender will ask for a complete list of financial documents.
    7. Due Diligence
      As you navigate through the due diligence period, this is the time where the serious research and analysis is done. More information on the due diligence process is below
    8. Close the Deal
      At this point, the deal is done and there is no room for further negotiations. There’s a fairly robust closing checklist that the buyer will need to complete before closing the sale. Once closed, it’s now time for the buyer to focus on their comprehensive post-acquisition plan.
  • Which due diligence items should I be aware of?

    Due diligence is a critical phase of the acquisition deal. Make observations and inquiries related to:

    1. Historical financial statements
    2. Business tax returns
    3. Customer/client lists and applicable contracts
    4. Supplier/vendor list and applicable contracts
    5. Monthly sales breakdown to determine seasonality
    6. Current pipeline
    7. Inventory list
    8. Employee handbook, organization chart and any employee contracts
    9. Competition and market share
    10. Competition and market share
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