Business Loan For Buying A Business

As a specialist finance broker, we provide high-quality business loan solutions for our clients.

• Market leading rates when buying a business
• Borrow up to 60% of your turnover
• Business loans from £25,000 to £25 Million
• Business acquisition loans, working capital loans, unsecured and secured business loans, e-commerce financing, revolving credit facilities, merchant cash advances, asset finance, invoice finance, management buyout finance
• Finance for residential and commercial including retail outlets, restaurants, cafes, guest houses, Airbnbs and B&Bs, offices, warehouses, industrial units, factories, HMOs, nursing and care homes, medical practices, dental practices, pharmacies, gyms, investment properties, development land and buy-to-let property (portfolios and limited companies welcome)

We pride ourselves on providing excellent service responsive to your needs.

Why Buy a Business? 

There are many reasons why you might choose to buy an existing business rather than starting one from scratch. 

A faster way to own a business 

Take out a loan to buy a business on Wednesday and be your own boss by Monday. It might not work out that quickly in practice, but the theory is sound, and, in many cases, things do move extremely rapidly. 

• Imagine wanting to run a local restaurant. You have all the business smarts and the drive to do so, but you don’t want to spend months finding a building, equipping a kitchen, employing chefs, designing menus and everything else that goes alongside such a venture. 

• There’s a good restaurant local to you that you have eaten in and enjoyed, and the owner looks close to retirement age. It could do with a makeover and an injection of entrepreneurial passion, so you make an offer… and a couple of weeks later, you’re a restauranteur. 

It can be as easy - and as quick - as that. 

Working with existing success 

Companies that have been running for years have an established customer base, well-trained and experienced staff, stockrooms filled with goods to sell, and much more.  

If a company is already successful, then you have a solid platform to begin your life as a business owner and with an expert team already in place, chances are there are the perfect people to listen to right there. Once you add your know-how to the mix, why shouldn’t you take the business higher and higher? 

Buying a successful business means less risk, a gentler learning curve, and greater immediate profitability. It will be more expensive, of course, but with the right planning and a strong application, it can be straightforward to raise the capital. 

Saving a dying company 

Conversely, there is the idea of buying a company close to administration or already in the process. Here, you get a bargain, a business on its last legs that could flourish with the right helping hand. 

Buying a struggling business can be an incredible investment if you know what you are doing. Clients already on the books are likely to respond well to someone saving projects before they become abandoned, and creditors may be comfortable arranging suitable terms to make the existing debts less of a burden - it’s a win for them as they could have lost it all. 

Of course, it’s not all plain sailing. There is a risk that the business cannot be saved, and you may end up with a collection of weak assets and many problems. Proper due diligence and understanding of the company are essential. For this reason, it can be much harder to secure a loan to buy a business that’s potentially on its way out, and you may need to inject more personal collateral. 

Nonetheless, when it works, the result can be incredible. 

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Getting a Loan to Buy a Business - A Lender’s Risk Assessment 

Financing a buyout of another business is typically more than your finances will allow, especially if the business is in good shape. The majority of business purchases, therefore, require additional finance from a bank or other lender. 

Unlike other forms of business finance, when you look for a loan to buy a business, the lender has to consider two completely separate risk assessments. 

The first is you, personally. When looking for indications of how legitimate you are as a business owner, the lender will focus heavily on your personal credit history. In addition, any other businesses for which you are financially involved or those for which you have been involved will be under scrutiny. 

Ultimately, the lender has to be assured that you, as an individual, possess the sort of reliability they like to see in a borrower. 

Secondly, the business itself must be fully assessed. Even if you are a viable candidate for a loan, what are they putting this money towards? It is not as simple as financing a car or a mortgage for a property, where the valuation of the asset is straightforward. Undertaking due diligence when valuing the business and its long-term viability can be lengthy and complicated. 

It is only when both your personal credit history and the prospective business's forecast are considered acceptable that an application for a loan to buy the business will be successful. 

It is for this reason that businesses that are in distress can be harder to acquire loans for than those which are showing a strong outlook. 

Use our business loan calculator to get a quick quote. Or get a bespoke business loan quotation. 

Mitigating Risk - Your Investment 

The primary way a lender mitigates risk is through your own personal investment. There are many ways to see this investment and a number of different terms used to reference it, but they all boil down to the same question: what do you contribute to the venture? 

To the lender, the business is an asset to be valued as a guarantee for the loan. While it cannot be repossessed in the same way as a tangible asset, it is evaluated in a very similar way (and will have its own tangible assets, too). This structure isn’t dissimilar to a mortgage, and like a mortgage, you would be expected to look at the loan-to-value percentage (LTV) and make up the remaining funds from your own capital. 

Types of Business Acquisition Loans 

Business acquisition loans can come in many varieties. Banks and other financial institutions will offer both secured and unsecured loan options to help buy a business, as well as asset-based finance, which can be especially relevant if the business has strong tangible assets such as owning commercial property or a range of specialised equipment in good repair. 

Businesses with significant accounts payable may be suitable for invoice financing, with factoring options becoming immediately available once the business is owned and secured. 

Bridging loans provide another alternative for entrepreneurs to use to purchase a business. Though they can be seen as higher risk, a bridge loan may be easier to acquire and offer a rapid method of acquiring finance, especially if the prospective business is a going concern that can offer multiple possible exit strategies. 

Asset-based finance based on other personal assets or those of another owned business also provides an avenue for acquisition finance. Here, much of the risk is moved away from the lender and gives them the assurances they might need to raise significant capital. 

It is best to speak to an experienced financial advisor or business loan specialist when looking at the business acquisition loan options to make sure you select the one that is most suitable for your situation. 

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Call us on 0203 880 8890 to discuss your requirements.

Pros and Cons of Buying a Business 

Like all ventures, there are pros and cons to using a loan to buy a business. Weighing up these different advantages and disadvantages is essential to ensure success. 

Pros

Fewer Risks 

A business that is already established has proven its viability. While there are still risks involved in taking it on, the core concept has been tried and tested and a customer base has been established. 

Fast Growth 

The injection of new capital on top of existing successes can mean the business is able to expand quickly in ways that were previously closed off, making it immediately more profitable. 

Simplicity 

With systems and infrastructure already well established, getting up and running is easy, and you can quickly start operating the company the way you want to. 

Experienced Staff 

An existing business comes with trained and capable employees with a proven capacity to get the work done. They may be able to help you understand on a deeper level so you and improving the business. 

Existing Customers 

A strong client base can be one of the largest assets for a business, and when you buy the business, you get that database. No need to plough funds into marketing just to get going. 

A Ready-Made Business of Size 

When you use a loan to buy a business, you get a whole company ready to go and can jump in right at the top. 

Cons

Business May Be Past its Sell-by Date 

Some businesses have a short shelf life, with concepts that age and become less lucrative. Take care not to buy a company that looks good on paper but is nearly obsolete. 

More Investment Needed 

It is likely that with new ownership and a new viewpoint comes a whole host of new ideas that will need additional investment. Your business acquisition loan may not be enough to do everything you want. 

Resistant to Change 

Companies that have become mired in their processes can be difficult to untangle. Any new ideas you come up with may take extra time to implement

Dealing with Old Problems 

Issues between existing staff won’t go away just because there’s a new boss in town. There may be managerial difficulties to navigate, especially if employees don’t like the idea of the change of ownership. 

Fulfilling Obligations 

You may not agree with some contracts in place or the deals made to get them - but you will have to fulfil or renegotiate those obligations. 

Personal Liability 

Your business acquisition loan is likely to involve a level of personal financial guarantee. The pressure on you to make this venture work may be significant. 

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Acquiring a Business - The Process

Availability 

Not all businesses are up for sale. It may seem obvious, but it is key that you determine if it is possible to buy the business. Perhaps you have seen that the business is up for sale, in which case this stage is easier, but it may be that you are keen to buy a company that is not advertising for new ownership. 

You will need to approach the owner and suggest the idea to them. While your expectation may be that no one would want to give up a business they have grown from the ground, the opposite is often true. Life changes, age, a reassessment of priorities, and other difficulties all make business owners receptive to an offer of purchase. 

Many businesses are bought by family members, friends, and customers or clients familiar with the business, each providing a retirement plan for the old owner that they may not have considered. 

It never hurts to ask. 

Valuation 

It is essential that you undertake a full valuation of the business. Most purchases are easy to evaluate. For example, when buying a television, the overall market price of televisions, combined with an analysis of the specific model’s specifications and the manufacturer's reputation, are typically all that is needed to determine if the price is right. 

A business is a complex entity, and understanding its true worth is equally complicated. 

It is important to get independent help. A business broker has the industry experience and expertise to make a confident financial valuation of the business.  

However, a business valuation doesn’t paint the entire picture. Your knowledge of the industry and personal experience are also key factors. It is essential to remain objective throughout, as emotions have the potential to cloud your judgment. If you're especially enthusiastic about buying a specific business, you may be willing to go a little higher in your offer due to personal experience, but always keep the independent valuation firm in mind - any prospective lenders definitely will! 

Due Diligence 

The due diligence stage is an extension of the valuation and is very important before securing financing.  

While a valuation process will examine the business on paper, there is also a need to check everything is as it seems. Are the company’s tangible assets in good order and well maintained? Is the working environment positive, with staff happy with their contracts and situation? Does your accountant find the bookkeeping is as expected? Are projects in good order and customers happy? Ultimately, is the business sound - or at least, as sound as you expect it to be? 

There is some crossover between the due diligence and the work of the business broker, but it is worthwhile to consider this a separate step to the business valuation and leave nothing overlooked. 

Negotiation 

With a comprehensive valuation and complete understanding of the business, you will need to return to the owner to negotiate an agreed price. 

Following negotiation, you must instruct your solicitors to formalise your intent to purchase. This is called the “Heads of Terms” or “Memorandum of Sale”. 

Application 

With the intention to purchase the business now clearly understood, it is time to apply for finance formally. 

Ensure all your paperwork is complete and up to date. Lenders will want to see some or all of the following: 

• The business valuation, including current accounts and business assets 

• Reports of due diligence 

• Your business plan 

• The business financial forecast 

• Your personal accounts and identity documents 

Many prospective lenders are available to you, so it is worth shopping around to find the most suitable loan. Engaging with a business loan broker will smooth this process considerably and is strongly advised to help you get the cheapest deal. 

Purchase 

Your finance is approved, the capital is available, and it is time to instruct your solicitors to complete the purchase. 

Congratulations - you are now the proud owner of a new business. 

Flexibility Throughout 

Buying a business is not as easy as “do this, then do that”. You will need to be flexible and prepared to go back and forth to finalise arrangements, negotiate value, and obtain finance. For example, you will probably want an early understanding of how much capital you can raise before putting in all the effort of due diligence. Similarly, the ceiling on your loan may force you to go back and renegotiate with the current owner on price. 

Alternative Ways to Buy a Business 

A business acquisition loan is not the only way to buy a business.  

Consider the following alternatives: 

• Investment capital - You may be able to find external investors, either with venture capital, angel investment or through family and friends. Even if you cannot find the total amount needed with these investments, it is often possible to use the investment to fund a substantial portion of the purchase and apply for a loan to cover the shortfall. 

• Staggered payments to the seller - Although many business owners looking to cash out are after one swift transaction that leads them to a new life, others will be willing to consider a staged purchase plan. This may be where you buy the business in stages or where you own the business outright on day one but make staged payments to the original owner. It is always worth discussing options with them. 

• Borrowing from friends or family - Your friends and family may not want to come in as investors, but they may be willing to loan you money on standard repayment terms personally. 

• Use personal capital or assets - You may need to consider personal rather than business finance to secure the funds needed. Some mortgage companies are willing to consider remortgages to fund external ventures, while personal loans can be obtained for significant value. Personal savings may be worth considering if the business you intend to buy is in poor condition because business finance will likely be more complex to obtain, but the overall capital required may be smaller. 

How to Apply for a Loan to Buy a Business

If you are looking for expert assistance to get a loan to buy a business, contact Clifton Private Finance. Our team of advisors have access to a wide network of financial institutions and lenders and will work with you to find the financing you need to make those business ownership dreams a reality. 

As a specialist finance broker, Clifton Private Finance can provide a clear picture of the options available to you. We will assess your specific set of circumstances and arrange a finance solution tailored to your needs.

If you need business funding, call us on 0203 880 8890 or book an appointment below.

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