Financing the Purchase of an Existing Business
Financing any business is not an easy way, especially if it is a new venture and has a tight credit. On the other hand, it can be more difficult if you will finance the purchase of an existing business.
This is because there are some factors that you need to consider so that you can secure the finances easily most especially if the company has large assets and stable cash flow.
When buying an existing business, an investor should consider various factors for to meet the needs and requirements. Practically speaking, the sales of most business are the sales of assets of the business as well. Some buyers are contemplating whether or not to purchase an existing business for the reason it can include liabilities of business such as unpaid taxes, prone to law suit by the previous owner, and others.
Buyers usually underestimate the amount of capital needed to purchase certain business. The capital should be available not just to pay for the purchase price but for the following aspects:
- funds needed until the business generates cash
- funds to meet unforeseen expenses
- funds as reserve in case errors occur in the operation
It is very significant that the buyer should think beyond the price of purchasing, so that he can determine the overall capital required. Consulting a finance adviser or a lawyer is actually helpful if the buyer finds it difficult.
The Required Capital
The buyer should also decide the actual amount of the selling price that will then be covered by the equity capital and others. When purchasing businesses, the main resource of an equity capital is actually the personal savings of the one who is interested to buy the business. A small number of buyers, on the other hand, have enough savings to finance the purchase of an existing business with a debt financing.
The Source of Capital
If the buyer does not have enough funding for financing on purchasing a business, he or she can choose to borrow money by acquiring a loan. When seeking for a loan, always remember that there are options on how you can repay the loan. You can also ask for funding from your family, friends or investor. Be sure to present the business plan of the business as well.
Evidence of Ownership
The buyer of the business must also acquire the certified abstract title for every parcel of the real estate that is involved in certain transaction. Moreover, the abstract must be checked meticulously by the lawyer of the buyer as well as the certificate that will show whether there are unreleased mortgages, unpaid taxes, tax liens, judgment liens and special assessments.
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