Having all the capital up front in order to purchase a business is clearly the cleanest and easiest way to do it however this isn’t generally how it operates and people normally have the need to potentially borrow some money. This can be from a bank or loan company, friends or other potential investors. Before making any rushed decisions on where to find the money, take some time out to review your options. Here are a few pointers to take into consideration:
Type of business – There are lots of businesses for sale out there and depending on the valuation of the company will dictate how much investment you potentially need. Remember to always negotiate with the sellers before putting in an offer. No-one pays the sale price! You need to consider additional costs depending on the type of business. By this we mean some legal or compliance regulations. For example, accreditation to operate your business or government fees due to the area you are operating in. These can be hidden costs that are not always taken into consideration.
Investors – Sometimes people decide to go into business with someone else, or even a group of people. This can be somewhat dangerous and lead to disagreements (especially if others own more shareholdings than others) therefore think this through properly as to what value people will add to the company above and beyond their money (and what they are looking for in return). Some investors may have some conditions aligned to the deal (increased shareholdings after a period is a common one). We are not saying this is a bad option, we are merely pointing out that you need to be well aligned with the other investors and fully comprehend the terms of the deal.
Loan Company – With personal loans, its normally a pretty simple process. Go online, fill in your details and within seconds a decision is made. However for business loans this is slightly different. This is mainly due to the risk involved with companies and the loan company requires a level of guarantee that they will get their money back. As such, you will normally need a good sound business plan if the money you are looking for is substantial and to be able to demonstrate what it is being spent on. Some loan companies will accept this via phonecalls and online discussions however others may request a face to face meeting. Remember to be open and transparent with this and ensure that give them all the correct and accurate information they need as if they find out after approval that you have given false information then there can be severe consequences. There are many different companies out there that you can use for this so search on the internet carefully when doing so. Not always the cheapest rate is the best as sometimes these ones can have some complicated terms associated with them so make sure you read all the small print carefully.