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Business Loan Strategies to Buy a Business Opportunity

By: Stephen A. Bush

When buying a business opportunity that does not include commercial property, borrowers should realize that commercial loan options will be significantly different when compared to a business purchase that can be acquired with a commercial property loan. This problematic situation occurs because of the normal absence of commercial real estate as collateral for the commercial financing when buying a business opportunity. In terms of arranging the business financing, efforts to buy a business opportunity are almost always described by commercial borrowers as excessively confusing and difficult.

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 always be occasional situations in which the seller is willing to privately finance the purchase of a business opportunity, and it is not practical to discuss those business financing possibilities in this article.

Length of Business Loan to Expect When Buying a Business Opportunity

Business financing conditions to buy a business opportunity will frequently involve a reduced amortization period compared to commercial mortgage financing. A maximum term of ten years is typical, and the business loan is likely to require a commercial lease equal to the length of the loan.

Expected Interest Rate Costs for Buying a Business Opportunity

In the current business loan interest rate environment, the likely range for buying a business opportunity is 11 to 12 percent. To put this in perspective, it is not unusual for a commercial mortgage to be in the 10 to 11 percent range. The cost of business financing to buy a business is routinely higher than the cost of a commercial mortgage due to the lack of commercial property for lender collateral in a business opportunity transaction.

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. Some seller financing (such as 10 percent) is usually helpful and in some cases might reduce the down payment required from the buyer to buy a business.

Buying a Business Opportunity - Refinancing Options

An important business financing factor to include in planning efforts when purchasing business opportunities is that refinancing the business opportunity financing conditions will typically be harder to deal with than the initial commercial loan. 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.

Avoiding Problem Lenders When Buying 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. In our view an even more critical stage of this process is avoiding certain lenders that are routinely unsuccessful in finalizing a business loan to buy a business.

By eliminating such problem lenders, business borrowers will also be in a better position to avoid many other business loan problems typically experienced when buying a business. The proactive approach to avoid problem lenders can have dual benefits because it will contribute to both the long-term financial condition of the business being acquired and the ultimate success of the commercial loan process.

Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.

Article Source: http://www.simplepetcare.com/pet-articles

Stephen Bush and AEX Commercial Financing publish the Business Cash Advance Guide and free Commercial Mortgage Reports
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