Are you thinking about getting a bank loan to buy a business? If so, there are a few things you should know before you start the process that will get them to say yes. Here are 5 things you need to know before you apply for a bank loan.
Now keep in mind, just because you do the things in this article, it does not mean a lender will say yes. According to Guidant Financial, local banks decline 80% of aspiring small business owners for loans.
Sources of money to buy a business
Unless you are independently wealthy or have rich relatives, it is likely you will need to borrow money from someone or something to buy a business. There are many sources of funds in a deal: owner financing, the Small Business Administration, friends and family, 401K, and of course – loan sharks.
However, getting money from these sources has advantages and disadvantages. Let’s take a look at bank loans.
The Bank
First off, other than the loan shark, we have no advice on which type of loan source you should use, we are only talking about a bank loan right now.
It’s important to understand that getting a bank loan to buy a business is not a quick or easy process. It can take weeks or even months to get approved for a loan, and the process can be complex and time-consuming.
However, if you’re committed to buying a business and you have a solid plan in place, it can be a great way to finance your purchase. Here are 5 things to do to help you with the loan process.
Getting banks to say yes to a loan to buy a business
- Create a business plan: Before you start looking for a loan, it’s important to have a clear idea of what you want to do with the business and how you plan to make it successful.
- Build your credit: Banks want to lend to borrowers who have a good credit history and a strong credit score. If you have a low credit score or a limited credit history start working on improving your credit now, so you’ll be in a better position to get a loan when the time comes.
- Gather financial documents: You’ll need to provide the bank with a variety of financial documents, including tax returns, bank statements, and proof of income. Make sure you have all of these documents in order before you start the loan application process.
- Shop around: Don’t just go with the first bank you talk to. Shop around and compare offers from multiple banks to make sure you’re getting the best deal.
- Be prepared for rejection: It’s not uncommon for banks to reject loan applications, even if you have a solid business plan and good credit. If you get rejected try to identify any areas where you may be able to improve and try again.
Expert Tip – If you are thinking about getting a bank loan to buy a business, go talk to a banker first. They will tell you their process and what you will need to qualify.
The other thing to consider is the weeks it will take to gather all of this information, have the bank review it, and then make a decision.
Go deeper on bank loans
If you are thinking about a bank loan, How to Get a Business Loan: Insider Help from a Veteran Loan Officer book may be able to help you. This book was written by a banking insider and can provide some good tips and ideas on what will be required. It is worth a look.
Click on the book image to learn more
One more thing about bank loans
Some sellers do not want to put up with the hassle of providing all of that information and waiting weeks for a decision. This is not an issue every time you try to get bank financing, but it does come up.
Also, not every company you will want to buy will qualify for a bank loan. For example, If there are too many personal expenses running through the company or if it lost money in recent years, it could scare off a banker.
The bottom line about bank loans to buy a business
You should think about bankers as very timid deer in a forest. When you get close to them they run off. Well, it is not that bad, but you get the picture.
It is doable, but not an easy task to take. While you are there ask them if they participate in SBA loans to buy a business, SBA loans usually have better terms.
Now get out there and show those bankers who’s the boss!
