You have decided to take the plunge and buy a business, but what is the best way to finance your plans? Here, Matthew Johnson, an Associate Solicitor with Palmers, who specialises in corporate finance matters, outlines the available options:
If you are buying a new enterprise, bank loans may seem an obvious choice, but there are other ways you can achieve your goal.
When you are exploring a business sale, the seller will want to see a tangible plan for how you plan to pay for the business.
Factors such as your personal circumstances will influence what route you take. Unless you can afford to buy the business outright, you will need to consider the consequences of different finance options such as loan repayments or giving a share of profits to investors.
Commercial loans
One of the most common ways of financing the buying of a company is through getting a commercial loan. Obviously, this will need to be repaid, along with interest according to a set timeframe.
The terms of the loan may vary according to the lender and the level of risk your purchase appears to be.
One of the advantages of this approach is that you will own the business outright, however, you will have to make sure you can afford to keep up your loan repayments.
Owner or seller financing
This is an option where the buyer puts down a deposit and pays the rest with interest, with the business acting as collateral. This means that the owner takes back control of the company if any payments are missed, so you have to be prepared of the risk of losing your new business if you struggle to make the repayments.
Equity financing
Providers of this kind of finance invest cash in return for a stake in the business. An advantage of this approach is that you will not be saddled by debt and interest repayments, while you can gain access to the knowledge and experience of your investors who can be a big help as you drive your new business forwards.
Remember, however, that these investors take a share of any profits you make and can also have a say in any decisions that need to be made, so consider whether you are willing to share your profits and decisions in exchange for funding.
If you need advice on buying a business or related legal corporate issues, please get in touch with our expert team.