Higher interest rates, inflation and tight financial conditions are impacting trade and business investments in the US, so buying a business seems like a crushing pursuit right now.
However, 139 US business buyers who have bought, or are preparing to buy a business report differently in BusinessesForSale.com’s latest survey.
While rising interest rates and lender approval are a big concern, US buyers are still pursuing business ownership by using a combination of funding methods to purchase a business.
Here are the finance sources buyers are using to fund a business purchase:
Despite the concern of further FED rate interest hikes for the first half of 2023, bank loans are a common form of finance. Whether these are through commercial banks or online lenders, buyers are using bank loans combined with other forms of finance.
A great alternative to traditional bank loans is the SBA, with more favorable interest rates and loan terms that are suited to entrepreneurs. For example, entrepreneurs can purchase a business with a 10% down payment through the SBA.
Cash is the second most popular finance method, with buyers indicating that they are using their own savings to buy an existing business. This cash is typically used as a down payment on loans.
Home or property equity
Some buyers who are also homeowners are using equity in their home as acquisition funding. Re-mortgaging a property to release equity is an alternative method of financing that buyers are considering, as lower APRs and flexible repayments can make it more manageable.
Seller financing is another funding source that buyers are attracted to. This makes sense, as it allows buyers to avoid hunting for finance that will likely have high interest rates. Depending on the agreement made by the seller and buyer, this form of financing often has lower interest rates and benefits both parties post-sale.
It’s worth noting that a few buyers are considering private equity backing. This is an attractive option, as buyers are usually not required to pay back the investment. Instead, the investor will request ownership share, or an active role in the company’s decision-making.
Other key insights from the survey include:
- Retail and services, manufacturing, laundromats, gas stations, and food-related businesses are what most US buyers are interested in.
- The most sought-after states are Florida, Texas, California, New York, and New Jersey.
- According to 139 buyers, the hardest aspects of raising finance include lender approval, rising interest rates, and the length of the process.
- Buyers’ biggest concern when purchasing a business: undisclosed issues, inaccurate valuations, owner reliance, revenue concentration, and access to finance.
If you would like to understand more about what finance is available to you, you can read our loans to buy a business guide.