- Buying an existing business is usually easier to finance than a startup, especially if the business has a strong track record and consistent cash flow.
- You’ll still need to prove to lenders that your previous business experience and the business you want to buy are a winning combination. Your personal credit score matters, too.
- Banks, SBA lenders and online lenders all offer loans for business purchases. If you can qualify, bank loans typically offer the best rates and terms, but SBA loans are a strong backup.
Not everyone wants to take on the challenge of building a business from the ground up. An attractive alternative is to buy one that’s already up and running. Buying an existing business gives you an established customer base and existing cash flow, which can make it easier to get a small-business loan to finance the purchase.
How much do you need?
How to qualify for a loan to buy a business
It’s typically easier to get a loan to buy an existing business, known as a business acquisition loan, compared with startup funding. That’s because lenders have the existing business’s performance record to rely on when considering your loan application rather than a vague business plan or idea for a new business. However, your personal credit history, experience and details about the business you’re buying still matter.
Your personal credit
Through credit reports and credit scores, lenders are able to assess how you’ve managed debt in the past and potentially gain insights into how you’ll handle it in the future.
Credit score: The higher your credit score, the better your chances of approval and the more favorable the loan terms will be. However, there are still loan options for borrowers with bad credit.
Credit history: Lenders look to see if you have a history of paying your debts. Red flags they’ll watch out for are foreclosures, bankruptcies, repossessions, charge-offs and other situations where you haven't paid off the full amount.
Your business experience
Lenders look favorably on borrowers who have a track record of running other successful businesses, which can strengthen your case when buying a new one.
Industry and management experience: Having worked in the same industry as the business you want to buy helps, especially if you’ve never owned a business before. Management experience and related education carry weight, too.
Record of generating revenue: Past or current business financial statements can show lenders that you know how to run a business and make money.
Business credit record: Lenders check the business credit scores and reports of companies you own or have owned in the past, if any. They’ll look for red flags such as late payments, bankruptcies and liens on property.
The business you want to buy
Just because a business is operating doesn’t mean it’s a sound purchase. That’s why lenders will ask for documentation, often provided by the current owner, to gauge how healthy the business is.
Value of the business: Like you, your lender will want to ensure that you're buying a business that has value and that you're paying a fair price.
Past-due debts: Lenders will be interested in the business’s past-due debts, which may include liens, various types of taxes, utility bills and collection accounts.
» MORE: How to buy an existing business
Best loans to buy a business
| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 SBA 7(a) loan with NerdWallet Small Business | $5,000,000 | 650 | with NerdWallet Small Business |
 Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating 5.0 with NerdWallet Small Business | $100,000 | 700 | with NerdWallet Small Business |
 National Funding - Online term loan Nerdwallet Rating 4.7 with NerdWallet Small Business | $500,000 | 600 | with NerdWallet Small Business |
 OnDeck - Online term loan Nerdwallet Rating 4.9 with NerdWallet Small Business | $400,000 | 625 | with NerdWallet Small Business |
 iBusiness Funding - Online term loan Nerdwallet Rating 4.0 with NerdWallet Small Business | $500,000 | 660 | with NerdWallet Small Business |
Documents you’ll need when applying
Here are the typical documents you’ll need when applying for a small-business loan used to buy another business.
Personal documents
The following documents are used to evaluate your personal finances, business history and plans for operating the business after its purchase:
Personal tax returns.
Personal bank statements.
Financial statements for any of your other businesses.
Letter of intent.
Business documents
Documents from the current business owner will also be evaluated. Some common ones requested by lenders include:
Business tax returns.
Profit and loss (P&L) statements.
Business balance sheet.
Proposed bill of sale.
Asking price for inventory, machinery, equipment, furniture and other items included in the sale.
Where to get a loan to buy a business
Banks, SBA lenders and online lenders may all issue loans to buy a business. Which lender you go with will depend largely on your qualifications and how fast you need funding.
Banks
Best for: Low interest rates and competitive repayment terms (five to seven years).
What you’ll typically need:
A minimum credit score of around 700 or higher.
Two or more years of operating history for the business you’re buying.
Strong annual revenue and cash flow projections for the business you’re buying.
A down payment of 20% or more.
The biggest downside: Business loans from banks are usually the hardest to qualify for.
Banks generally offer the lowest interest rates and best terms for business loans. To qualify for a business bank loan, you'll typically need a strong credit history, plus the existing business will need to be in operation for a certain minimum of years and generate a minimum annual revenue amount set by the lender.
SBA lenders
Best for: Long repayment terms (as long as 10 to 25 years) and, as a result, lower monthly payments.
What you’ll typically need:
A minimum credit score of around 650 or higher.
Two or more years of operating history for the business you’re buying.
Strong annual revenue and cash flow projections for the business you’re buying.
A down payment of 10% or more.
The biggest downside: The application and funding process is longer; it can take one to three months to get funding.
If you don't qualify for a traditional bank loan, then SBA loans are the next best option when it comes to financing a business purchase. These loans can be easier to qualify for, and banks and credit unions frequently offer them in addition to traditional bank loans.
Online lenders
Best for: Fast funding and easier qualification.
What you’ll typically need:
A minimum credit score of around 600 or higher.
A down payment of 15% or more.
The biggest downside: Interest rates are usually higher than bank and SBA loans, and repayment terms are usually shorter (around one to five years).
Online business loans may offer more flexibility when it comes to qualification, compared with bank and SBA loans, and you can get funding as fast as a couple of days. Minimum credit score requirements can be as low as 600, and in a few cases lower. Generally, interest rates are higher than what’s available with a traditional bank loan.
» MORE: Best online business loans
Other ways to finance buying a business
If a loan isn’t an option for you, there are other ways you can access capital to purchase an existing business.
Seller financing
Depending on the owner of the business you’re trying to purchase, you may be able to request seller financing. This is an agreement directly with the owner that you can purchase their business and pay them directly in installments (similar to a traditional loan).
Seller financing rarely covers the entire cost of buying a business, but it can be a useful way to cover part of the purchase, such as some or all of the down payment on a business loan.
Venture capital
Venture capital is a form of equity financing that allows you to fund your business without taking on any debt. Instead of a loan, venture capitalists will give you lump sums in exchange for equity, or ownership in the business. Investors may have similar requirements to banks, so this option is best for those who can qualify for traditional financing, but want to avoid loans.
Personal financing
Personal funding options, like Rollovers as Business Startups (ROBS), use your personal savings or retirement savings to fund a business purchase. The risk is that you could lose your money if the business fails; however, if you’re confident with the current business operations, personally financing the purchase can be less risky than funding a startup yourself.
