Business Acquisition Loans: Overview and Top Options
A business acquisition loan allows you to spread the costs of buying another company over a number of years.
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What is a business acquisition loan?
A business acquisition loan is a type of small-business loan that’s used to buy a business. This can include:
- Buying an existing business.
- Becoming a franchise owner.
- Buying out a business partner.
- Purchasing assets of another company.
Banks, credit unions, online lenders and community lenders may offer business acquisition loans, including Small Business Administration loans. For example, you can use an SBA 7(a) loan to buy a business or increase ownership share in your existing business.
How much do you need?
We'll start with a brief questionnaire to better understand the unique
needs of your business.
Once we uncover your personalized matches, our team will consult you
on the process moving forward.
How do business acquisition loans work?
Business acquisition loans are typically term loans, where you repay the borrowed funds, with interest, over a set period of time. You may also be able to use a business line of credit to fund a business acquisition.
Loan amounts, interest rates and repayment terms vary by lender.
Where to get a business acquisition loan
Here’s a breakdown of the relative strengths and weaknesses of different types of business acquisition loan providers.
| Lender type | Interest rates | Typical repayment terms | Qualification requirements | Funding speed |
|---|---|---|---|---|
| Lowest. | 5 to 7 years. | Most stringent. | Slow. | |
| Low. | Up to 25 years. | Moderate. | Slowest (SBA Express loans are an exception). | |
| Highest. | 1 to 5 years. | Flexible. | Fastest. |
Banks and credit unions
Banks and credit unions can offer business acquisition loans with low interest rates and long terms. These loans are a good option for borrowers with strong qualifications who don’t need cash fast.
What it takes to qualify
To qualify for a business bank loan, you’ll typically need a personal credit of 700 or higher, two or more years in business and excellent finances. Not all banks or credit unions require collateral, but offering it may help you access larger loan amounts and lower rates.
Funding time
Bank and credit union loans can be slow to fund and often require a long application process.
SBA lenders
SBA loans are issued by participating lenders, usually banks and credit unions, and are partially guaranteed by the Small Business Administration. These loans have long terms and low interest rates and can be used for various types of business acquisitions. Like traditional bank loans, however, SBA loans have strict requirements and can be slow to fund.
What it takes to qualify
You’ll typically need strong annual revenue, at least two years in business and a personal credit score of 650 or higher — although some SBA lenders may have lower credit score requirements.
You’ll also likely need to provide a down payment of at least 10% of the total loan amount when using an SBA loan for a business acquisition. In some cases, you may need to provide additional collateral.
Funding time
Standard SBA 7(a) loans can take 30 days to a few months to fund.
🤓 Nerdy Tip
Looking for $500,000 or less? SBA Express loans offer quicker funding and less paperwork than standard SBA 7(a) loans. Online lenders
If you need funding faster — or don’t qualify for an SBA or bank loan — you might consider an online lender. Online lenders, such as iBusiness Funding, offer acquisition loans up to $500000 and terms up to 60 months.
What it takes to qualify
Loans from online lenders are generally easier to qualify for compared with banks and credit unions. You may be able to qualify with fair credit (a score of 630 to 689), and you may not need to provide physical collateral. Online lenders may also be more likely to work with startups, especially if they have strong finances.
Funding time
Online business loans can often fund in a few days. As a trade-off for easier approvals and speed, online lenders often charge higher annual percentage rates (APRs) than traditional lenders.
Best business acquisition loan options
| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 altbanq - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $10,000,000 | 650 | with Fundera by NerdWallet |
 SBA 7(a) loan with Fundera by NerdWallet | $5,000,000 | 650 | with Fundera by NerdWallet |
| SBA Express loan with Fundera by NerdWallet | $500,000 | 650 | with Fundera by NerdWallet |
 iBusiness Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $500,000 | 660 | with Fundera by NerdWallet |
 OnDeck - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $400,000 | 625 | with Fundera by NerdWallet |
 National Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $500,000 | 600 | with Fundera by NerdWallet |
 Triton Capital - Equipment financing Nerdwallet Rating with Fundera by NerdWallet | $250,000 | 575 | with Fundera by NerdWallet |
Pros and cons of business acquisition loans
Pros
Can help you avoid dipping into existing cash reserves or personal savings when buying a business.
May be able to use the assets of the business you’re buying as collateral.
Fast financing may be an option. Online lenders can offer access to funds within a few days.
Cons
May be hard to get. You’ll typically need a formal business valuation, a letter of intent and meet potentially strict lender requirements.
High loan repayments can strain cash flow, especially if you have a high interest rate, short repayment term or if revenue fluctuates.
May require a down payment of 10% to 30% of the loan amount.
Your lender may limit your ability to take on additional debt or make major business purchases while you’re still paying off the loan.
How to get a business acquisition loan
Follow these steps to get a business acquisition loan:
1. Start with a business valuation
Lenders typically rely on a business valuation — an evaluation of the economic value of the company you’re looking to buy — among other factors, when determining the loan amount to offer. You’ll want to get an official valuation before you start the application process.
These valuations are often done by independent third parties who use business assets, future earnings and current market value to get a fair assessment of what the business is worth.
2. Get a letter of intent
A signed letter of intent spells out the terms of the sale of the business. This includes the purchase price, what assets are included in the sale and any liabilities the new owner will take on. Like a business valuation, lenders will often ask you for a letter of intent as part of your loan application.
If you’re concerned about making an offer before you have a loan, a clause can be included in the letter that states your offer is contingent on you getting financing.
3. Evaluate your qualifications
Before approving a loan, lenders want to be sure you can pay it back. This means they’ll take a close look at both your personal finances and the financial health of the business or franchise you’re trying to buy. Here are some things they’ll likely consider:
- Personal credit score. The higher your credit score, the more likely you’ll qualify for a loan — and one with the most competitive rates and terms.
- Business financials. Lenders typically want to see the last three years of the seller's business tax returns, income statements, balance sheets and other financial statements. You’ll also likely need to provide a detailed business plan and financial projections outlining how you’ll maintain and grow the business.
- Personal finances. Lenders may also ask you for your own personal tax returns and financial statements.
- Business experience. Most lenders want to see that you have multiple years under your belt successfully running or managing a business. This helps show lenders that your new venture may likewise be a success.
- Down payment. Although not all lenders require a down payment, providing one can help you get better rates and terms.
- Collateral. You may be able to use your existing business assets — or assets from the company you’re buying — to secure your financing. Physical collateral makes it less risky for the lender, since they can take the assets if you can’t repay.
4. Compare lenders
Research and compare several lenders to find the best option for your needs. You should compare factors such as business loan rates, fees, repayment terms, application process and customer support. Use NerdWallet’s business loan calculator to compare overall loan costs between lenders.
It may also help to read lender reviews to get a better sense of their reputation. Look for lenders with good reviews who are transparent about their rates, fees and terms.
🤓 Nerdy Tip
Consider using a business lending marketplace, like Fundera by NerdWallet, to compare multiple loan options at once. You can submit a single application and review potential loan matches. 5. Gather your application documents
Once you’ve decided on a lender, you’ll need to provide documentation based on their requirements. The speed with which you can gather this information can affect the overall timing of the application process.
Be prepared to provide:
- Business valuation.
- Signed letter of intent.
- Sales agreement.
- Franchise agreement, if applicable.
- Business financial statements.
- Business tax returns.
- Contracts and leases.
Keep in mind that the lender will likely ask for your financial documentation (bank statements, tax returns, financial statements) in addition to those from the business you’re purchasing.
6. Apply and review loan agreement
Depending on the type of lender, you will submit your application online, over the phone or in person. Once you’ve been approved, you’ll receive a business loan agreement. You should review this agreement carefully and make sure you understand the repayment terms, rates and fees.
After signing the agreement, the lender will send the money. The lender may send funds directly to the seller, or in a lump sum to you, depending on its specific process.
Alternative business acquisition financing options
If you’re looking to buy a business, you may have funding options outside of traditional term loans. Here are a few to consider.
- Seller financing. With seller financing, you’re borrowing the money you need to buy the business directly from the current owner. You work with the owner to create an agreement regarding terms and interest, then repay the owner directly.
- Equipment financing. If your business acquisition includes equipment, you can use an equipment loan to finance part of your purchase. Or if you’re buying a business that relies heavily on equipment, such as a construction business, you may be able to find an equipment loan to cover a majority of the costs. With equipment financing, the equipment typically serves as collateral on the loan.
- Franchise financing. If you’re buying into a franchise, you may be able to secure a loan directly through your franchisor or with a lender it has partnered with. Your franchisor may be able to work with you to provide better terms or discounted fees than other franchise loan options.
- Self-funding. Self-funding a business purchase by using personal savings or using your retirement fund can pay off if the business is a success. This option may be less risky when buying a business as opposed to starting one from scratch since you are likely purchasing assets, a customer base and more. Plus, the numbers are already there to demonstrate the business’s potential. The risk, however, is that you may lose your retirement or personal savings if the business fails.
Frequently asked questions
Can I get a business acquisition loan with bad credit?
Yes, but your options will be limited. Some online lenders may be willing to work with you if you have a lower credit score. You may also increase your chances of approval by offering a large down payment and/or significant collateral.
How much can I borrow with a business acquisition loan?
Maximum borrowing amounts for business acquisition loans depend largely on the lender. Some online lenders offer up to $500,000, for example, while SBA 7(a) loans are available up to $5 million.
The loan amount you’re eligible for varies based on additional factors, including the valuation of the company you’re looking to buy and your business’s qualifications.
Can I get a business acquisition loan with no money down?
It is possible to get a business acquisition loan with no money down. Some online lenders may not require a down payment, especially for self-collateralizing loans, such as equipment financing.
Many other options, like bank and SBA loans, will likely require a down payment. In general, offering a down payment can help you get a loan with better rates and repayment terms.
