Business Acquisitions: Financing Options For Entrepreneurs
If business acquisitions are a viable next step to grow your operations, there are a wide range of options available. Since business acquisitions are often complex and delicate matters, choosing the right financing is the key to success. In order to make things easy and save entrepreneurs a lot of research, we have compiled the five most commonly used financing strategies for business acquisitions.
When carrying out a business acquisition, most entrepreneurs think traditional lending channels have the right solutions. While bank loans have long been the “go to” for business financing, many have limits on the amounts they can lend to small businesses, which can cause delays for time-sensitive transactions, such as acquisitions.
Asset Based Financing
During business acquisitions, fixed assets are evaluated within the company that is being acquired. Asset based financing allows business owners to tap into the value of fixed assets to create a source of working capital. Asset based financing allows business owners to meet more immediate costs to ensure a smooth transition during an acquisition.
There are times when traditional debt vehicles are not the right fit for business acquisitions. In these situations, business owners turn to equity financing. Equity financing is simply and exchange of capital for a stake in the company. Since equity investors see a return based on the success of business acquisitions, they will often advise entrepreneurs along the way to make certain everything goes smoothly and profitably.
Mezzanine financing straddles the line between equity and debt financing. For little or not collateral, business owners can get access to capital large acquisitions. Mezzanine financing is typically repaid with stocks, payable-in-kind (PIK) interest, partial ownership, and other forms of equity. Most entrepreneurs use mezzanine financing in situations where rapid growth is expected after business acquisitions.
Seller Carry Financing
For small and medium business acquisitions, the seller will sometimes finance part of the transaction, themselves. In these arrangements, business owners typically make a down payment to the seller, and both parties come to an agreement on the terms of the financing, as well as interest rates and other covenants.
Business Acquisitions Made Easy
At BG Capital Funding Group, we provide a variety of solutions for business acquisitions of all sizes. From asset based financing to seller carry solutions, mezzanine loans, and more, we can ensure your acquisition transpires quickly and efficiently, to minimize expenses and disruption throughout every step of the transaction. Contact our offices today to learn more.