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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:
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.
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.
From start to finish, the acquisition process can be lengthy and involved. Live Oak takes pride in our efficiency across the entire bank. We work diligently to keep things moving forward and ensure transparency along the way. Preparation and organization on the part of the borrower can certainly make the process move more quickly. To learn more about how to close your loan faster, read our blog post about how to prepare all necessary closing documents.
During your initial conversation with a Live Oak lender, we’ll gather documents and ask questions to help us better understand the deal and if we’ll be able to approve this loan. Early on, we’ll let you know if your acquisition loan won’t qualify for Live Oak’s credit standards.
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:
Due diligence is a critical phase of the acquisition deal. Make observations and inquiries related to:
While not mandatory for all loans, it can be advisable to get a quality of earnings (QOE) report in certain scenarios. A QOE is essentially a deep dive into the seller’s financials to uncover any potential underlying risks to the buyer. Some say that a QOE is similar to getting a home inspection before you buy a house – it may look sturdy on the outside, but you need a professional to look for things you may not realize are hidden within the walls. Your lender will let you know if this is necessary for your business acquisition loan.
It’s common to build in working capital into an acquisition loan structure. When determining a purchase price, the buyer has been able to review prior income statements and balance sheets, which will inform how much working capital will be needed to keep the business operational. There are two solid options to consider: permanent working capital with an SBA 7(a) loan and short-term working capital with an SBA Express Line. Discuss this with your Live Oak lender, who will be able to steer you in the right direction.
Seller financing is common in business acquisition deals. When a seller has more “skin in the game,” it’s a more attractive deal for both the buyer and the lender. To determine specific seller financing terms, work with your lender who can help you settle on a fair, wise percentage.