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Loans to Buy a Business in the USA: A Useful Guide

If you don't have the capital or resources to buy a business, you can explore several loan options to see the deal through. An existing business has an established customer base, experienced workforce, and revolving cash flow. If you aren't sure how to explore your loan options, this guide is designed to help you do just that.

What Is a Business Loan?

A business loan is a form of business financing that you can obtain from a commercial bank, private lenders, credit unions, investment bankers, and other sources. People take out business loans to buy an existing business or merge with another entity. The funds can be used for various purposes, including buying equipment, hiring new employees, expanding your office, marketing, advertising, debt consolidation, and more.

Lenders typically offer a business loan as a lump-sum payment, or they might provide you access to lines of credit. You enter an agreement with the lender, where you promise to repay the debt over a certain period, along with the interest and additional fees. When the loan is being negotiated, the borrower is also told whether they need to make weekly or monthly payments until the loan is fully returned.

Business loans are of two different types: secured and unsecured. If you opt for a secured loan, you need to provide collateral, including an asset that the lender can possess if you can't repay your loan. The collateral assures the lender that they won't lose their money, and it can include property, equipment, or stocks.

On the other hand, an unsecured business loan doesn't require collateral. However, the banker or lender might require you to sign a document that guarantees you will be liable if the business isn't profitable or doesn't make enough money to repay the debts.

Find out more: Thinking of buying a business? Read our guide on how to buy a business for helpful tips.

Should You Buy a Business, or Start One From Scratch?

Starting your own business always seems like the best thing to do, but you can’t guarantee whether it would be a successful business or not. If this is the first time you are stepping into the entrepreneurial world, it might take you a long time to set things up properly, and there are more chances of making mistakes. On the other hand, you can choose to buy an existing business and manage, improve, and grow it.

You may also be at a point in your business journey where you’d like to expand your portfolio, and merge with or acquire a target that has considerably higher value. If you are interested in exploring M&A targets in the USA, you can explore’s exclusive space for high-value businesses.

Established products and services

When you buy an existing business, you will also acquire its products and services already released in the market. Therefore, you won't have to spend much time or effort in research, marketing, advertising, and other processes.

For example, if you buy a beverage business with a significant market presence and promising sales figures, you can be sure that customers will continue to buy your products, especially if you maintain the same formula, ingredients, and production methods.

To find out how a certain business's products and services are performing in the market, you should conduct your own due diligence before making a decision.

Time is on your side

If you think about starting a new business, you will have to climb mountains every day and start things from scratch. It would take you a couple of months to register your business and gather all the resources, equipment, raw materials, and other things you need to launch it. On the other hand, buying an existing business would have most of the components in place.

Your products and services will be in the market already, but you will also be able to cut down on the initial steps of establishing your business. If you consider starting a new business that sells custom T-shirts, you will need to purchase equipment for printing, find a supplier, buy or rent a space for your store, and set up an online platform.

You will have to hire new employees, train them, and develop regulations and SOPs for the business. This is a lot of work and requires a significant amount of time.

Existing businesses usually already have installed equipment, trusted suppliers, a managed store, trained and experienced employees, and a customer base. Therefore, you will be able to save a lot of time, and it would be easier for you to understand the business structure.

Brand loyalty

Another reason why you might choose to buy an existing business is because it likely has a stronger brand identity, which also translates to higher brand loyalty.

A strong brand image is vital for selling your products and services to a larger customer base, and if you already have that, you’ll avoid multiple challenges. If you have the business acumen or the marketing experience, you will be able to take your sales figures to the next level.

Start-ups and small businesses may need to struggle and work very hard to grow their brand in a competitive marketplace, and it can be even more difficult to penetrate the market as a new brand. This way, you can navigate through the introductory stages and become the owner of a flourishing business.

When it comes to brand image and loyalty, you should also consider investing in a franchise. You can explore profitable franchise opportunities on our site.

Ease of securing financing

A strong benefit of buying an existing business is that it helps you secure a business loan much faster. It can be quite difficult to convince lenders to provide you with capital if you have a new business, especially if you don't have anything to offer as collateral. Although it still requires research, obtaining a loan to buy a business isn't as extensive and strenuous as the process for start-ups.

Find out more: Want to know more about the buy-side of M&A? Understand the buyer’s perspective in mergers and acquisitions.

Knowing the Value of a Business Before You Take Out a Loan

evaluate a business

If you are confident that you’d like to purchase a business, the first thing to do is understand the business’s value, which often determines its price tag. There are various ways to conduct a valuation, including hiring an investment banker, analyzing the brand's financial performance, evaluating sales figures, and using different methods to understand financial figures.

Thankfully, if you don’t have the means to hire a valuation expert, offers a free valuation tool that produces a comprehensive and pragmatic valuation of the business you are interested in. If you’d like to do a bit more research on the valuation process, you can read our guide on valuing a business.

Checklist Before You Start Assessing Your Finance Options

It is important to consider several processes before you start applying for different term loans and lines of credit. We’ll go through some of them below.

Understanding the market

First and foremost, you need to understand the market you will venture into. Doing so is crucial, as it will uncover risks, opportunities, and conditions that you’ll be up against. Knowing the market, you’ll operate in will highlight demand, who your competitors are, what your marketing strategy will look like and how you’ll incorporate this research into your business plan.

Your down payment

The next thing you need to consider is the down payment, which is a requirement for any business loan, regardless of which type of lender you go to. As the borrower, you won't just get money if you present the company's business valuation you are planning to buy. The amount for the down payment depends on various factors, including the type of loan you have applied for and the amount you are asking for. In some cases, the type of business you want to buy also impacts the down payment required.

Gathering funds for interest rates

Whenever you secure a business loan, your weekly or monthly payments won't only be to repay the amount you have borrowed. You also need to pay the interest levied on the business financing amount.

On average, the interest rate for business loans ranges between 2.5% to 7%. The exact rate is determined according to several factors, including the type of business, the collateral you offer, and the type of loan you have opted for.

You have to make sure you can make these payments, including the interest.

Checking credit scores

Your credit score will play a significant role in the business loan process, and you will need to check the acceptable credit score for business financing in your state. We’ve offered some credit score facilities (and other credit management and repair sites) in different states below:





Washington DC


These are some of the top credit score and repair companies that you can get in touch with to find out about a suitable credit score to apply for business financing.

Calculating a debt-to-income ratio

You’ll need to find out your debt-to-income ratio, since it is a valuable metric in determining what type of loan you’ll receive. A DTI measures how much of your receivables are directed towards repaying your debts. This value is what lenders use to determine whether you should get a business loan or not.

You can find out what terms will be offered to you by the lender, and it will help you make a sound decision. If your gross monthly profits are $50,000, and you use $5,000 for the loan repayments, your debt-to-income ratio would be $5,000 / $50,000 X 100 = 10%. This translates to a lower debt-to-income ratio, which increases your chances of getting a business loan with good terms.

Cash reserve for closing costs

Before you choose a lender and agree to one of the loan options presented to you, you should also set aside some money for the closing costs, which is the amount you need to pay to open your loan account and seal the deal with your lender. Having a cash reserve will help you save time and get the ball rolling faster.

Drafting a business plan

One of the most important things to do before you start applying for business financing is to draft a business plan, which lays out the complete blueprint for lenders. Since you are interested in buying an existing business, your business plan will include the full details of the business you are looking to buy.

The business plan should contain your executive summary, company description, market analysis, and other specifics.

Negotiating the best finance terms

Once you have started applying for term loans, the lenders will evaluate your business plan, credit score, and other information to determine whether you are eligible for a business loan.

Next, they will offer you the terms on which you can receive the money, and if you think they aren't fair, you can negotiate them to get some form of relief. For instance, if you think you are getting a high-interest rate, you should try lowering it rather than having to make hefty monthly payments.

Funding Options You Can Consider

types of funding

Let's have a look at some of the different types of funding you can choose in your business buying journey.

Unsecured loans

As mentioned earlier, you can obtain unsecured loans without the requirement of collateral. However, the lender might ask you to sign an agreement claiming personal liability if your business fails to pay back the debt.

Commercial mortgages

A commercial mortgage is a business loan that a company can use to buy commercial property, specifically for business purposes.

Asset Financing

Asset financing is a business loan given against non-physical assets, such as investments, bank deposits, shares, bonds, and other assets.

Other Sources of Funding You Can Explore

Apart from taking out a business loan, you can also consider other sources of business financing to gain access to capital. Let’s have a look at some:

Angel investors

An angel investor is a person who invests in startups and small businesses to help them get off the ground, and they receive equity against it. They usually fund companies that don't normally get funding from other sources.

Business grants

Apart from a business loan, you can also consider a business grant, which gives you money without any requirement for paying it off and without any interest charged. Small business grants can be used to fund certain portions of the business. It is uncommon to find a business grant that will fund the acquisition of a business entirely, but they are useful when funding growth of certain components of a business.

You can explore multiple grants available to you in our small business grants guide.

Government-guaranteed lending scheme

A government-guaranteed lending scheme allows you to get a significant amount of cash to run your business in a time of crisis. The funding comes without any conditions or interest and can be used to buy and run an existing business.

Friends and family

One of the easiest and most effective ways to get business financing is to ask your friends and family to invest in your business plan. They will be more receptive and understanding than a banker or lender, and they will also provide you with more amicable terms. Provided they have the capital to do so, it is important to draw up a contract that can be signed – in case there are any unforeseen risks on the horizon.

Venture capitalists

A venture capitalist, or VC, is an individual that offers funding to businesses in exchange for equity or a stake in the company. Usually, they ask for a bigger share, but they also have more money to give out.

Equity finance

Equity financing involves raising funds for the business by selling its shares. This method is adopted by companies that need to fulfill their immediate goals or take care of their expenses.

Own funds

You can avoid taking out a business loan by using your own funds. This doesn't necessarily mean that you need money lying around to funnel into your acquisition. You might have a certain asset with the same or higher value as the amount of money you need to buy an existing business, and you can sell it off. This way, you won't have any debts to worry about.


Finally, banks are one of the most popular choices for loan options, especially when you are going to buy an existing business. You can share your business plan and other specificities with them, and they can offer you a loan with certain terms that you can accept or negotiate.

Get Your Funding and Seal the Deal

time to buy

Now that we’ve given you a comprehensive list of funding options available to you, we hope that you can make a more informed decision when it comes to funding your business buying journey.

Although you have multiple avenues of capital to tap in to, it is crucial that you conduct appropriate research on these options, and that you understand your financial limitations and ensure you act responsibly when managing your debts.

Nonetheless, there has never been a better time to pursue business ownership, and we wish you every success on your new journey. If you’d like more support, or you want to connect with someone from our team, feel free to contact us.

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