Whether you want to start a brand new business or grow the one you already have, acquiring an existing business can be an excellent way to jump start your progress. Rather than starting from scratch, you can acquire assets of a business that’s already established and grow from there.

But the big question is how do you pay for it?

The median sale price of a business in the second quarter of 2023 was $300,000, according to data from BizBuySell. (Good news for buyers: prices are dropping. That  figure is down 14% from the previous quarter.) 

Not all entrepreneurs have the cash to pay for a business up front. And that’s where financing comes in. Here’s how to find a small business loan for acquiring a B2B business.  

Understanding B2B Acquisition Loans

B2B means “business to business,” and refers to businesses whose customers are other businesses, rather than consumers. Just a few examples: software or SaaS businesses, auto industry, property management, B2B ecommerce, food manufacturers and more. 

Business acquisition financing generally falls into three main buckets: seller financing, bank loans/SBA loans, and alternative financing. Some business owners find they need to use multiple sources of financing. For example, a traditional lender may require the seller to carry a note for at least 10% of the sale price. 

Seller Financing

Buyers often want the owner to finance the sale, while sellers may be reluctant to do so. In BizBuySell’s Insight Report (Q2 2023),   70% of buyers surveyed said they intend to ask the seller to finance part of the deal. But only 22% of owners plan to offer seller financing, and an additional 28% remain undecided. 

There may be a number of factors a seller may consider when deciding whether to offer financing. They will want to feel confident that the buyer will be able to continue to run the business successfully, and they may want to check the buyer’s credit history to understand whether they are a good credit risk. 

Seller financing can come in the form of a loan with fixed payments over time (and perhaps a balloon payment for the balance at a set date in the future), or some type of performance guarantee where the seller earns a percentage of future revenues. 

Bank and SBA Loans

Banks are often a popular source for small business acquisition loans. Forty-three percent (43%) of prospective business buyers surveyed by BizBuySell said they intend to use an SBA or traditional bank loan to finance the purchase. 

Small business loans from banks and traditional financial institutions such as credit unions can offer excellent terms,including lower interest rates, but they also can be hard to qualify for. Many banks require excellent credit and will carefully scrutinize the financial statements of the business. The approval process can be time-consuming. A down payment or owner equity will almost always be required, and the bank will likely take an interest in any available collateral. 

SBA loans are mainly offered by banks and traditional financial institutions. The U.S. Small Business Administration doesn’t make loans, it guarantees them. These loans offer long repayment terms at competitive interest rates. 

There are several SBA loan programs; 7(a) loans are the most popular for financing the purchase of a business. The maximum 7(a) loan amount is $5 million. SBA Express loans (part of the 7(a) loan program) offer up to $500,000 and approval can be faster. 

There are important caveats you should be aware of:

• These loans are for for-profit businesses located in the US, and must be operating in an eligible industry. (Not all types of businesses are eligible.)
• All owners with at least 20% ownership will be subject to a personal credit check. There may also be a business credit check. 
• SBA loans require acceptable credit. There’s no minimum credit score requirement for many SBA loans, though 7(a) Small Loans require a minimum FICO SBSS Score of 155. (Lenders require a higher minimum score.)
• While SBA loans generally can’t be denied solely because the borrower doesn’t have collateral, if collateral is available the lender will often be required to secure the loan with collateral. 
• A personal guarantee is required.
• There are limitations on the seller’s involvement in the business post-sale. 
• If the business rents its location, landlord subordination will generally be required. Owner occupancy restrictions apply to real estate financing. 
• SBA lenders must follow SBA guidelines but beyond that have flexibility in the loans they offer. In other words, while your business may not be a fit with a particular SBA lender, that doesn’t necessarily mean no lender will work with your business. 

Learn more about SBA loans here. 

Alternative Financing

Online and Alternative Lenders. Some online lenders and non-banks offer business acquisition loans with more flexibility than banks and SBA loans. There will still be a lot of paperwork involved; the lender doesn’t want to make a loan that won’t be repaid. And in some cases they may carry higher interest rates. But you may be able to get a more flexible loan than. 

ROBS Plan. A Rollover as Business Start-up (ROBS) is an arrangement where prospective business owners use retirement funds to pay for new business start-up costs. It’s a very specific type of funding. If you decide to go this route, make sure you work with an experienced advisor. Failing to follow IRS guidelines can result in significant tax penalties. 

Other Types of Financing 

Commercial Real Estate Financing

About 20% of small business owners surveyed by BizBuySell said they own the commercial real estate they use to operate their business. A commercial real estate loan can be an option for financing the acquisition of the real estate of the business.

Equipment Financing

If the business has equipment, or if the equipment needs to be upgraded, you may want to look into equipment loans or leases, in addition to any other types of financing you’ll secure. 

Business Credit Cards

While you probably won’t purchase a business on a credit card (though it is possible if the loan amount is small enough), you may use a business credit card to fill in gaps and help you meet smaller working capital needs during a transition period. 

Top Loan Options for B2B Acquisitions

Here are some excellent options to consider if you are looking for the best business acquisition loans: 

SmartBiz

Funding Circle

Kapitus

Oak Street Funding

Oak Street Funding offers loans and business lines of credit up to $50MM for business acquisition with terms up to ten years. It allows buyers to leverage recurring revenue streams as collateral.

*All information about Oak Street Funding  has been collected independently by Nav. This product is not currently available through Nav. To see what financing options are available, please visit Nav’s lending page.

Factors to Consider When Choosing a Loan to Acquire a Business

Start the process of looking into lending options when you start your search for a business to buy. Know your qualifications, including your personal credit scores and the size of a downpayment you can afford. 

When you’re looking at a business to buy, you’ll want to make sure they can back up their sales data with copies of business bank statements, along with financial statements and copies of tax returns. Check their business credit scores. Lenders will want that documentation, so you will want to review it too. (You may need to sign a letter of intent and/or an NDA before you can get certain detailed information.) 

Beyond that, there are some key questions to ask when evaluating loan offers:

What type of loan do I want? Are you a good candidate for a bank loan or SBA loan, or is alternative financing a better fit due to your time-frame or other factors?

How long do I need the loan? While a long-term loan with low monthly payments may be ideal, if you can’t qualify for one you may be able to get a short-term loan and then prepare for a traditional loan later.

What are the loan terms? Look at the interest rate, of course, as well as fees. Is there a prepayment penalty? What about a balloon payment?

How much do I need? If you only need a small amount—less than $50,000, for example, you may be able to use a business credit card with a 0% intro APR. Larger loans, will require a much more involved underwriting process.  

What do I qualify for? Your credit score, cash available, and factors such as your experience in that industry or professional qualifications may affect eligibility for certain loans. 

Nav can help you find financing based on your data. 

The Application Process: Tips and Best Practices

Expect the loan application process for a business acquisition loan to be complex and time-consuming. 

Both the buyer and seller should be willing and able to respond to the lender’s request for detailed financial information and other documents when requested. A seller that doesn’t want to be bothered with providing these details is probably not going to be a good partner if you want to get outside financing.  

While this may sound daunting, keep in mind that it can be easier to get a loan to buy an established business than it is to get a startup loan for a brand new business. The cash flow of the existing business can be helpful in qualifying for a loan. 

It’s beneficial to work with a business broker and/or your accounting professional to ensure that all your documents are in order and to improve your chances of loan approval.

Navigating Post-Acquisition Challenges

Whatever business you buy, there will be a period of transition where you get to know the businesses’ strengths and weaknesses. If the business has employees or contractors, both you and they will need to adjust. 

You may face unexpected costs that didn’t show up in the due diligence process. Be prepared to dig into both the operations and financials of the business to see where you may be able to reduce expenses, increase sales, and ultimately increase profitability.