The quality of business financing will directly effect the success of business opportunity investment strategies. Business finance strategies for business opportunity investments are more problematic than most borrowers expect, especially if investors are primarily familiar with real estate investing.
Buying a business opportunity is likely to be an extremely challenging task when arranging the business loan. This is usually especially difficult if there is no commercial real estate as collateral for buying a business opportunity. When buying a business that does not include commercial real estate, business borrowers need to realize that business loan options will be greatly reduced in comparison to a business purchase that can be financed with a commercial mortgage.
Business Opportunity Investment Financing Guidelines -
The guidelines and comments in this article are based upon business loan terms that are typically available from respected lenders willing to provide business financing for buying a business opportunity throughout the United States. There will often be various private financing scenarios in which the seller might be willing to wholly finance a business opportunity acquisition, and we will not attempt to discuss those commercial loan possibilities in this commentary.
Length of Business Loan to Expect When Buying a Business Opportunity -
Business loan terms to buy a business will typically include a shorter amortization period than commercial real estate financing. A business loan term of ten years is normal, and that length of loan is likely to be tied to a requirement that the commercial lease will not expire before the loan matures.
Likely Interest Rates to Buy a Business Opportunity -
In the current business loan interest rate environment, the likely range for buying a business opportunity is 11 to 12 percent. Because a rate of 10-11 percent is currently normal for commercial real estate financing, the rate for business opportunity borrowing should be viewed as quite reasonable. The commercial loan interest rate cost to purchase a small business opportunity is typically higher than the cost of a commercial real estate loan due to the absence of business property for collateral in a business opportunity purchase.
Down Payment Requirements for Buying a Business Opportunity -
Depending on the specific type of business and some other issues, a normal down payment for a business loan to buy a business is 20 to 25 percent. The presence of seller financing might lessen the down payment needed to acquire a small business opportunity.
Buying a Business Opportunity - Refinancing Options -
A related business loan issue to anticipate when buying a business is that refinancing the business opportunity loan terms will normally be even more difficult than the original business financing. There are several new working capital loan programs under development that could significantly change future choices for business opportunity refinancing. Until these new business opportunity financing alternatives are available, it is advisable to obtain the best financing terms when the business is initially acquired and not rely upon future refinancing choices.
Lenders to Avoid When Commercial Borrowers Buy a Business Opportunity -
Perhaps the most important phase of the business loan process for buying a business opportunity is the selection of a commercial lender. An equally important task is avoiding lenders that are unable to finalize a commercial loan for buying a business.
By avoiding such lenders, commercial borrowers are likely to avoid many other business financing problems frequently associated with buying a business opportunity. Eliminating problematic lenders will be critical to the immediate success of the business financing efforts as well as to the future financial condition of the business being purchased.
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