Advertiser Disclosure

Small Business

Where to Find the Best Short-Term Business Loans

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

This guide will help you decide whether a short-term business loan is the right move for your company and how to get one that meets your needs.

You’ll learn:

Part I: Explaining Short-Term Business Loans

Whether you’re running your own business or you have a small team of employees, at the end of the day everything falls on your shoulders as a business owner. Every opportunity is yours to take. Every problem is yours to solve.

And the truth is that both opportunities and problems often require cash. Cash to buy more inventory. Cash to market your services. Cash to get you through a rough patch.

But sometimes the cash isn’t there when you need it. And that’s where a short-term business loan can be helpful.

Short-term business loans give you access to money quickly so that you can address your immediate need and pay the loan back with the revenue you earn over the next several months.

They essentially act as a bridge, allowing you to get from Point A to Point B even if you don’t have the cash on hand to do it yourself.

Recommended short-term business loan options

You have a lot of lenders to choose from when looking for a short-term business loan, and you should expect to spend some time sorting through them to find the best option for your personal needs.

Here are a few good options to get you started, and you can refer to the following guide for even more: 17 Options for Small Business Loans.

OnDeck

OnDeck
  • Website: https://www.ondeck.com/short-term-small-business-loan
  • Max loan amount = $500,000
  • Loan terms from 3 to 36 months
  • Annual interest rates start at 9.99%, with an average annual rate of 42.5%
  • 2.5 percent to 4 percent origination fee
  • Eligibility requirements
    • 1+ years in business. The average customer has been in business for 7 years.
    • $100,000+ annual gross revenue. The typical customer has $450,000+ annual gross revenue.
    • 500+ credit score. The majority of customers are at 660+.

Rapid Finance

Rapid Finance

National Funding

National Funding
  • Website: https://www.nationalfunding.com/solutions/short-term-business-loans
  • Max loan amount = $500,000
  • Loan terms from 6 to 12 months
  • Fees from 24 percent to 80 percent
  • Eligibility requirements
    • 1+ years in business
    • $100,000+ annual gross revenue
    • No defined minimum credit score, but representatives indicated that 465-480 was the lowest they have previously seen qualified
    • 3 months’ of bank statements

Kabbage

Kabbage

Compare small business loans online

These sites are great tools for small business owners looking to compare offers from several small business lenders all at once. They typically ask for some key info about your business and the type of loan you are looking for, then match you with lenders that fit your needs.

LendingTree

LendingTree

Website: https://www.lendingtree.com/business/small/

  • Eligibility requirements:
  • 1+ years in business
  • Credit score, revenue and other factors will be evaluated independently by each lender

Disclosure: LendingTree.com is the parent company of MagnifyMoney.

SBA Lender Match

Website: https://www.sba.gov/lendermatch

4 smart ways to use a short-term business loan

Source: iStock

Taking on debt should almost never be your first option, but there are a few situations in which a short-term business loan can make a lot of sense.

1. Buying More Inventory

Maybe you’re just starting out and you need to buy the inventory you’ll eventually sell. Or maybe you’re gearing up for a heavier sales period than usual.

Whatever the case, there are times where you need to buy more inventory and you don’t have the cash on hand to cover it. And as long as the expected revenue exceeds the amount you’re borrowing, plus interest, paying the loan off quickly shouldn’t be an issue.

2. Opening a new location

Opening a new store or a new office has the potential to grow your business by leaps and bounds. More locations means more opportunities to serve more people.

But it can cost a lot of money to open a new location. A loan can help you get it up and running, with the revenue produced by that new location being used to pay off the loan.

3. Hiring employees for the busy season

A lot of businesses need extra workers at certain points in the year. Think vacation destination restaurants in the summer or retail stores during the holidays.

A short-term business loan could help you hire those extra employees ahead of time, ensuring that you have all the help you need to take full advantage of the busy season.

4. Getting through a financial emergency

Unfortunately, business isn’t always booming. Sometimes you hit a rough patch, business is slow, and there isn’t enough revenue to cover all your expenses.

Taking on debt to address financial difficulties is risky. A loan is an additional financial burden that could make your problems worse.

But if you have good reason to expect a turnaround in the near future, a short-term loan could help you keep the lights on in the meantime.

Pros of Short-Term Business Loans

While a short-term business loan isn’t always the right solution, these loans do have a few advantages over other forms of financing:

  • Fast approval process – Certain online lenders will issue approval in just a few hours and deposit the money in your account in as little as 24 hours. If you need money fast, that could be the way to go.
  • Build your business credit – Short-term business loans are often available to businesses with little to no credit history. This both allows you to borrow money when other avenues are unavailable to you and to build a credit history that makes it easier to qualify for bigger loans down the line.
  • Take advantage of business opportunities – Because of the fast approval process and less stringent credit requirements, short-term business loans often allow you to take advantage of business opportunities that otherwise wouldn’t be available to you. This can sometimes make the difference between a business that fails and one that succeeds.
  • Match your borrowing needs – It doesn’t make sense to take out a 10-year loan if you just need help buying inventory you’ll sell in the next few months. Getting a short-term loan allows you to get the money you need and pay it back quickly so that it isn’t a burden any longer than it needs to be.

Cons of Short-Term Business Loans

While short-term business loans can be helpful in the right situations, they have a few characteristics that should make you think twice before taking them out:

  • Typically smaller loan amounts – Many short-term business loans are capped at $500,000 or less. If you’re in need of more than that, you may need to find a different form of financing.
  • Higher APR – Short-term loans typically have higher interest rates than longer term loans that come with longer application processes and stricter eligibility requirements. You’re paying the interest over a shorter time period, but it can still be an expensive way to access money.
  • Could be subject to daily/weekly payments – Shorter loans also come with more frequent payments. Many lenders require daily repayment, and even weekly repayment could be difficult if you won’t get the revenue right away.
  • Can lead to spending beyond your means – Due to the ease and speed with which you can obtain these loans, there’s a risk of developing a dependency upon debt that leads you to spending more than your business can truly afford. While debt can be helpful on occasion, it is not a sustainable way to run a business.

Short-term loan vs. line of credit

A line of credit is a popular alternative to taking out a short-term business loan, and there are situations in which it can be the better option.

A line of credit is an amount of money that a lender makes available to you to borrow. But unlike a loan, you don’t receive the entire amount right away. Instead, you are allowed to borrow money as you need it, up to the maximum amount, and you only pay interest on the amount you have actually borrowed.

According to Cathy Derus, CPA, a financial planner and the founder of Brightwater Financial in Chicago, the main advantage of a line of credit is the flexibility it provides. You borrow only what you need when you need it, allowing you to more precisely match your debt with your expenses.

The flip side, Derus says, is that a line of credit typically comes with a higher interest rate. If you are fairly certain of the amount of money you need, a short-term loan often allows you to borrow it at a lower cost.

Interest rates always depend on the lender you use and the specifics of the situation, so these aren’t hard and fast rules. But generally you can approach this decision like this:

  • If you’re unsure of the amount of money you need, or if you don’t need it all at once, the flexibility a line of credit provides may be worth the extra cost.
  • If you have a specific amount of money you need right now, a short-term loan may be the cheaper option.

PART II: Qualifying for a Short-Term Business Loan

Source: iStock

What it takes to qualify for a short-term business loan

Every lender has a different set of standards and will evaluate your business a little differently. But Derus says that there are three main factors that almost all lenders consider when deciding whether to offer you a loan, and on what terms:

  1. Time in business – Businesses that have been around for a longer period of time are less likely to fail and are therefore considered less risky. Older businesses are therefore generally able to qualify for larger loans at preferable rates.
  2. Credit history – Just like applying for a personal loan, lenders prefer long credit histories that show consistent, on-time payments. One of the benefits of short-term business loans is that you can often qualify without an extensive business credit history, but in that situation your personal credit will be scrutinized more closely and you may be held personally liable for the loan if the business can’t pay it back.
  3. Financial health of your business – The lender will look at bank statements and financial reports like profit and loss statements and your balance sheet to make sure that your company has the financial resources to pay back the loan. Most lenders specify a minimum gross revenue in order to qualify.

Lenders may also look at things like the industry you’re in, the amount of equity you personally have in the company, other debts or liens against the company, and even your business plan so they can feel confident you’ll use the money well.

Questions to ask before shopping for a short-term loan

Given those criteria, how can you put yourself in the best position possible to qualify for a favorable short-term business loan? Here a few questions you can ask yourself:

  • How long have you owned your business? The longer you’ve been in business, the more likely it is that you’ll be able to borrow the money you need at a reasonable cost.
  • Do you have organized and consistent financial reports? You’ll need to provide these to the lender during the application process, so you’ll want to make sure you have them ready and that they are accurate.
  • Do you have the revenue needed to pay back the loan? In addition to the lender’s evaluation of your revenue, you need to be confident yourself that you’ll have the money to pay back the loan quickly.
  • What is your company’s credit history? A strong and extensive credit history will make it easier to qualify for a loan. Minimal credit history means your personal credit will be more important. A negative credit history will make it harder to qualify.
  • What is your personal credit history? Even with minimal business credit history, you can often qualify for a short-term business loan if your personal credit history is strong.
  • Do you have other loans or obligations? Your credit utilization is the amount of debt you currently have compared to the amount of credit you have available to you, and a low credit utilization rate is one of the big keys to a good credit score. Loans and other financial obligations can not only hurt your credit score, but they can make you more risky in the lender’s eyes because you have multiple debts to pay back.
  • Do you have a relationship with any particular bank? A strong and extensive history with a particular bank might make it easier to borrow money on preferable terms.
  • Do you qualify for any government loans? The government offers lending programs to companies in specific situations. If you qualify, you may be able to borrow on more favorable terms than you would through private lenders.

How to determine what type of business loan you need

Finding the right short-term business loan for your needs requires some work on your part. Your job is first to understand your need, and second to find the loan that matches that need at the lowest cost possible.

Here’s a step-by-step process you can follow:

  1. Figure out how much money you need – You don’t want to borrow more than you need, but you also don’t want to come up short. In addition, the amount of money you need will affect the lender you choose, as different lenders have different maximum loan amounts.
  2. Determine when you need the money – Do you need it right away or can you afford to wait? The more time you have, the more options you’ll have available to you, as some of the loans with better terms require a longer application process.
  3. Determine when you’ll be able to pay back the loan – When will you have the revenue to pay back the loan? This will help determine how long your loan term needs to be.
  4. Can you afford to make daily or weekly payments? Short-term loans often require daily or weekly payments, so you need to make sure you’ll be able to make them.
  5. Check your business credit history – Business credit scores range from 0 to 100, with the SBA noting that 75 or above is the ideal range. You can research your business’s credit history through Experian and Dun & Bradstreet.
  6. Check your personal credit history – You can pull your credit history for free once per year from annualcreditreport.com. And you can use this guide to get a sense for your credit score. A stronger credit history and higher credit score will lead to better loans.
  7. Prepare your financial reports – You should have well-organized bank statements, a profit and loss statement, and a balance sheet ready to provide during the application process. If you haven’t been keeping your books up to date, you might want to obtain the help of a CPA to make sure everything is done correctly.
  8. Evaluate alternatives to a short-term loan – There are alternatives to taking out a short-term loan, such as taking out a line of credit or utilizing a small business credit card. Make sure that a loan is truly the best option before proceeding.
  9. Reach out to the bank you already do business with – The bank you already work with may be your best bet for favorable terms, especially if you’ve had a long and positive relationship. Reach out to them first to see what they’re able to offer.
  10. Research local credit unions – Credit unions are member-owned and therefore often offer better deals than the big banks. Search for credit unions in your area and reach out to see what types of loans they offer and whether you qualify for membership.
  11. Apply with online lenders – Online lenders often offer shorter applications, quicker approvals, and better user experiences, but those benefits often come at the cost of higher interest rates. If you need money quickly, or if your credit isn’t ideal, these may be your best option. Either way, it’s worth applying to see what you qualify for. To compare offers for small business loans from various lenders, check out MagnifyMoney parent company LendingTree.com’s small business offer tool. 
  12. Compare the offers you received – Once you’ve shopped around, you can compare the loan offers you’ve received both to each other and to your borrowing needs. You should compare them along variables like the amount of money being offered, the interest rate, the frequency and amount of payments required, and the overall length of the loan, along with any other terms and conditions each loan comes with.
  13. Make a final decision – At this point you should be ready to make a final decision. And remember, not taking out a loan is still an option at this point, especially if none of the offers were exactly what you were looking for.

Alternatives to a short-term business loan

While a short-term business loan can be invaluable in the right situations, it isn’t your only option when it comes to financing your needs. Here are a few more to consider:

  • Future revenue – If you can afford to wait and you expect revenue to be coming in soon, you may be better using that future revenue to finance your project yourself. There’s no application process and no interest to pay.
  • Line of credit – As discussed above, a line of credit is a good option when you’re unsure how much money you’ll need and when you need it. You can secure the line of credit and simply borrow the money as needed, with the likely trade-off of borrowing at a higher interest rate.
  • Business credit card – There are a number of small business credit cards available, some of which provide a promotional period with 0% interest. If your borrowing needs are relatively small and you can qualify for these cards, you may be able to borrow the money cost-free.
  • Personal line of credit – If you can’t qualify for a business line of credit, you still may be able to qualify for a personal line of credit. Derus warns against this option, though, since it blurs the line between you and your business, which can lead to you being personally liable for your business’s obligations. And she warns about following all relevant tax laws, such as calculating imputed interest, when using personal money in your business that you plan to pay back to yourself.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

Advertiser Disclosure

Small Business

Brick-and-Mortar vs. Online Banks: Which is Better for Small Businesses?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Getty Images

Separating your personal and professional finances is crucial when starting a business, and changes in technology are making it more convenient to do so. Not only could you turn to traditional brick-and-mortar banks, but you could take advantage of the resources that digital banks offer.

Opening a business bank account would allow you to clearly track your income and expenses without putting your personal spending in the mix. Managing a business bank account would also help you build your credit profile — you could become eligible to open a business line of credit or credit cards connected to your account.

Whether you choose an online bank or a brick-and-mortar bank would depend on which type fits your needs as a business owner. Keep reading to find out what kind of bank would be best suited for you.

Small business banking: Brick-and-mortar vs. online banks

A key difference between traditional and online banking is the flexibility that digital banks provide, said Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling. Small business owners could have around-the-clock access to online banking services as long as they have a device and an internet connection.

“This can certainly help busy business owners who are strapped for time by allowing them the option to bank on their schedules,” he said.

Brick-and-mortar banks

Although most brick-and-mortar banks now offer online banking features, consumers still must make some transactions in person, Coleman said, such as cash transactions that require personal identification. When opening a business checking account with Chase, for example, customers must meet with a business banker before enrolling in online and mobile programs. Still, this could be a draw for some business owners.

“Some consumers are simply more comfortable having a physical banking location where they can perform transactions and speak to banking associates in person,” Coleman said.

New business owners could also benefit from the guidance that bankers provide, said Grier Melick, business consultant at the Maryland Small Business Development Center. Establishing a personal relationship with a banker could also be beneficial if you plan to apply for a small business loan. You may have a better chance of being approved for funding if the bank already knows and trusts you.

“Oftentimes, small business owners do not know everything that they need to from a business banking perspective,” Melick said. “Having some direct human involvement can help with that.”

Online banks

Online banks have lower overhead costs than traditional banks, and those lower costs typically result in higher interest rate yields on deposits for digital banks than branch-based banks, he said. For instance, a high-yield business savings account could have an APY as high as 2% and no minimum account balance.

However, brick-and-mortar banks have the advantage of allowing customers to make cash deposits or withdrawals; an online bank typically wouldn’t offer that feature, Coleman said. However, online banks sometimes belong to free ATM networks, like Allpoint, which would allow you to avoid the withdrawal fees that you’d incur at other ATMs.

Best of both worlds

It’s possible to have accounts at both types of banks, Melick said. For example, the owners of a brick-and-mortar store may start with an account at a local bank branch, then open a digital account when they decide to start selling online.

“Instead of severing ties with the bank, they could open an online account as well to handle their other revenue streams,” he said.

You could be subject to banking fees at both traditional and online banks, Coleman said. However, online banks generally charge considerably fewer fees and you may be able to avoid overdraft, monthly maintenance and ATM fees that come with a traditional bank account.

Here’s a quick look at how the two types of banks stack up.

Online banksBrick-and-mortar banks
24/7 access to accounts and banking features.Online banking features typically offered, but some transactions may have to be completed in-person during bank hours.
High-yield accounts available.Lower interest rates because of overhead costs.
Customers cannot complete in-person cash transactions or meet with bank representatives.Customers can make cash transactions, and bank representatives are available for meetings.

Digital services on the horizon for traditional banks

Online banks are growing in numbers and popularity, Coleman said. Traditional banks have taken this trend as a cue to bolster digital offerings for consumers.

“As a result, we are seeing traditional banking introduce more digital options for providing services,” he said.

The presence of digital financial technology is expanding within the financial services industry, comprising 7% of the total equity of U.S. banks, according to research from consulting firm McKinsey. To keep up, traditional banks must consider ramping up digital efforts in areas such as design, innovation, personalization, digital marketing, data and analytics to provide value to customers.

A few traditional banks rolling out expanded digital services include:

Bank of America

Earlier this year, Bank of America created Business Advantage 360 for customers who have business deposit accounts with the bank. The free tool provides a digital dashboard showing business owners their major expenses and transactions, as well as automated cash flow projections that can be adjusted to account for new sales or other data. Users can also connect with small business bankers through the dashboard.

PNC Bank

PNC Bank rolled out a digital business lending platform this year in partnership with OnDeck, an online small business lender. Leveraging OnDeck’s digital loan origination process, PNC aims to provide customers with business financing in as few as three days, a significantly faster timeline than how long it would take to process a conventional bank loan.

Popular Bank

Similarly, New York-based Popular Bank announced a partnership last year with Biz2Credit, an online lender serving small businesses. Popular Bank leans on Biz2Credit’s technology to digitally process loan applications outside of regular bank hours, effectively speeding up time to funding.

As the lines begin to blur between online and brick-and-mortar banks, business owners may find themselves with an increasing amount of digital opportunities. However, a demand for brick-and-mortar banking will likely remain. Small business owners who borrowed from an online lender reported feeling less satisfied than those who borrowed from a community bank — 49% vs. 79% — according to a Federal Reserve survey.

“Whether consumers turn to online only banks, or traditional banks that offer online products and services, the availability of online options will more than likely continue to grow,” Coleman said.

Which bank is best for your small business?

Whether you choose an online bank or a brick-and-mortar bank to house your business funds would depend on your personal preference, Coleman said.

No matter which you pick, make sure the Federal Deposits Insurance Corporation insures your bank of choice, he said. Single consumer accounts, joint accounts and business accounts, among others, would be protected at FDIC-insured banks in the event of bank failure. Deposits up to $250,000 should be safe and covered.

If you like having the ability to sit down with a banking professional to discuss your business needs, a branch-based bank could be the better choice, Coleman said. The physical presence that traditional banks provide could add a level of trust and reassurance. Keep in mind, though, that most locations have standard business hours that may not be conducive to your schedule as a business owner, he said.

A digital bank would allow you to complete your banking activities on your own time, said Coleman, though traditional banks oftentimes provide online services as well. He also noted that you may want to avoid using a public WiFi network to make business transactions, as those networks may not be secure and your information could be vulnerable.

A digital bank wouldn’t offer the same in-person service as a traditional bank, Coleman said, but you may not feel like you’re missing out.

“If the business owner already knows what they are looking for in a bank, and the online bank meets their needs, then they may prefer the online bank for its convenience, potential lower fees and higher interest on deposits,” he said.

All business owners should at least consider opening a high-yield savings account for cash that isn’t needed for daily operations, Melick said.

“Small businesses need to make sure that every penny they make works for them,” Melick said. “Oftentimes, the best way it can is through online banking accounts.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

Advertiser Disclosure

Small Business

Business Acquisition Loans: What They Are and Where to Find Them

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Getty Images

Buying an existing business can be an effective strategy to grow your operation. But if you don’t have enough cash to make the purchase, a business acquisition loan could help you finance the deal.

There were more than 17,500 mergers and acquisitions in North America in 2018, according to the Institute of Mergers, Acquisitions and Alliances.

Continue reading to find out where you could find a loan to buy a business — and how to boost your approval chances.

Types of business acquisition loans

There are several ways to finance a business acquisition. In some cases, the seller may loan you the money and accept payments taken from your business profits. Or, you could assume the business’ existing debt by purchasing both its assets and liabilities.

You could also pursue a leveraged buyout, which involves using business assets to fund the purchase. However, a leveraged buyout typically requires additional financing, such as a business acquisition loan.

Business purchase loans come in a variety of forms. Here are a few for which you could apply.

Term loans

A long-term business loan can finance a wide range of purchases — generally between $25,000 and $200,000. Long-term loans have fixed monthly payments and fixed interest rates, which allow you to plan for regular payments. You could be required to provide a 10% to 30% down payment. These loans typically must be paid back in three to 10 years and often have lower interest rates than financing products with shorter repayment terms, such as short-term business loans that must be paid back between three and 18 months.

Lenders may require substantial paperwork from applicants, which could slow down how long it takes to get funding. Some businesses could have trouble qualifying since borrowers usually need two years in business, a strong credit profile and collateral to be eligible for long-term loans.

SBA loans

The U.S. Small Business Administration guarantees a portion of loans made to small businesses through partner lending institutions. SBA loans range from $500 to $5.5 million for qualifying small businesses. You may be required to make a 10% to 20% down payment. The 7(a) loan program is the SBA’s primary financing option and may be best suited to fund business acquisitions. The standard 7(a) loan is available for up to $5 million. The SBA guarantees 85% of loans that are $150,000 or less, and up to 75% of loans exceeding $150,000.

Repayment terms for 7(a) loans could be up to 25 years for real estate purchases and up to 10 years for equipment purchases or working capital. Interest rates can be fixed or variable and would be based on the prime market rate, plus a markup rate. The SBA caps the percentage that lenders can add to the prime rate to limit how much interest borrowers must pay.

Equipment financing

Equipment loans are designed to finance the purchase of business assets, which could be useful if you’re buying a business based on the value of its equipment. The equipment would act as collateral on the loan, which could lower the interest rate and make payments manageable. Interest rates could range between 6% and 12% depending on factors such as your terms and down payment. Borrowers typically have to make a 10% to 20% down payment and need good credit to qualify for financing.

Repayment terms for equipment financing generally range from six months to 10 years. In some cases, the terms of an equipment loan could exceed the useful life of the asset.

Where to find a loan to buy a business

Business acquisition loans are available from traditional banks and alternative online lenders. To give you a starting point, we’ve rounded up a few lenders that specialize in business acquisition financing or SBA lending.

Live Oak Bank

Live Oak Bank is an SBA lender offering acquisition loans to veterinarians, pharmacists and investment advisors. Live Oak Bank is headquartered in Wilmington, N.C., but it lends to businesses nationwide.

Live Oak Bank issues SBA 7(a) loans up to $5,000,000 to buyers of companies with $250,000 to $1.25 million in EBITDA, or earnings before interest, taxes, depreciation and amortization. Those loans have 120 month repayment terms, and interest rates are subject to the SBA cap. If you’re acquiring a business with more than $1 million in EBITDA, you could be eligible for a companion acquisition loan up to $2.5 million from Live Oak Bank. Companion loans have repayment terms between five and seven years. The interest rates, according to Live Oak Bank, may be higher than rates for SBA-backed loans.

Ameris Bank

Ameris Bank, with locations across the South, offers financing for business acquisitions. Businesses of all sizes can apply for funding. Repayment plans can be set up on an annual, semiannual or monthly schedule. Rates and terms are competitive, according to Ameris Bank, and would depend on your profile as a borrower.

It is also an SBA preferred lender and issues SBA loans to finance business acquisitions. Applicants would be required to provide at least 10% equity to qualify for an SBA loan. Repayment terms could be as long as 300 months, and rates would be subject to the SBA cap.

Smartbiz

Smartbiz is an online marketplace specifically for preferred SBA lenders. Smartbiz matches lenders to applicants who may have trouble qualifying for loans from their local bank. Loans are available for up to $5,000,000 with interest rates between 6.50% and 8.75% and terms between 120 and 300 months.

Borrowers must have at least two years in business, good credit, no recent bankruptcies and sufficient cash flow to repay debt. Smartbiz can process an application and disburse funding in as few as seven days.

Banner Bank

Banner Bank, which has locations in California, Idaho, Oregon and Washington, offers merger and acquisition financing to business owners looking to grow through acquisition or to buy out a business partner. Loans come with fixed or variable interest rates and terms up to 84 months. Applicants would need to set up a meeting with a relationship manager at their local bank branch to find out if they qualify.

How to get a business acquisition loan

When applying for an acquisition loan, the lender would likely dig into details about your business, as well as the business you plan to buy.

Be prepared to share the following information about your company with lenders:

  • Personal credit history: Having a strong personal credit profile and a FICO Score exceeding 680 would make you appear more attractive as a borrower and could help you get a lower interest rate.
  • Professional experience: Your success as a business owner would impact whether a lender would issue you a loan to acquire and manage another business. If you do not own a business, relevant industry or career experience could be valuable.
  • Business plan: A lender would review yours to make sure you have a strategy to grow your existing business and the acquired business.
  • Financial documents: To illustrate your record of operating profitably, you would need to submit financial statements such as your balance sheet, income statement and cash flow statement. A lender would want to see if your business will generate enough cash flow to repay an acquisition loan.
  • Industry: Lenders view some industries as riskier than others. Professional service providers tend to be safer borrowers, while volatile businesses such as restaurants, retailers or vice-related companies could be considered risky.

The industrial sector has seen the highest percentage of business transactions since 1985. Behind industrials is the technology and financial sectors. On the other hand, mergers and acquisitions are less frequent in the telecommunications, retail and real estate industries.

Regarding the business you plan to acquire, a lender would likely evaluate:

  • Business credit profile: The business should have a strong credit profile that shows a history of making on-time payments to vendors and suppliers.
  • Financial statements: The company’s balance sheet, profit and loss statements, tax returns, current debt liabilities and cash flow analysis would give the lender a look at the viability of the business.
  • Projections: Revenue and sales projections for the next few years would also help a lender understand the potential value of the acquisition.
  • Valuation: The valuation of the business would show how much the deal is worth, which would affect your loan amount.

Before giving you the green light, a lender would want to make sure you’re buying an established business that would generate enough revenue to allow you to repay your debt. With this information, you could make sure the loan application process goes smoothly and increase your chances of approval.

The bottom line

Business acquisition loans can fill the gap when you want to purchase a company but don’t have enough funds to do so. Term loans, equipment loans and SBA loans could be used to cover a business acquisition. You could apply for financing from a traditional bank or online business lender to obtain the necessary money to finance the deal.

Be sure to shop around before accepting an offer. Wait for a loan that not only provides the amount of funding you need but comes with repayment terms and interest rates that work best with your small business.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]