How To Get Financing For Buying A Business
Table Of Contents
Why Financing Matters When Buying A Business
You might ask yourself, Should I still go for financing if I have all the cash at hand? The truth is, you could just use your cash if you have it.
However, it’s worth noting that most buyers don’t go this route. Instead, they opt to use the different financing methods available.
The idea behind this is that using a good financing method lets you preserve your cash for operations or growth of your newly acquired business.
Also, lenders will want proof that you can run the business well, so they trust you to pay back.
Getting good financing can make or break whether you acquire the business.
Statistics show that small business loans outstanding in the U.S. totaled over $1.3 trillion in 2023.
This simply shows how big the market is, but also how many businesses borrow.
Now let’s look at the top financing methods you should consider when buying a business…
We Help You Buy / Build, Manage and Scale E-commerce Brands for an EXIT
E-commerce Simplified for Busy Individuals – We handle the buying, building, and scaling, so you can focus on what matters.
Growth-Focused Strategies – From sourcing to marketing, we drive growth and prepare you for a profitable exit.
Expertly Managed Exits – We build a high-value brand designed for a Lucrative exit.
Best Financing Methods For Buying A Business Compared:
Method | Risk to you | Speed | Cost (interest/terms) | Control lost? |
Bank / SBA loan | High (you repay debt) | Slow | Lower interest if approved | None or minimal |
Seller financing | Moderate (seller risk) | Medium/fast | Likely higher interest | Usually none |
Investors/equity capital | Shared risk | Varies | Return to investor, maybe high | Yes |
Alternative lending | High risk or cost | Medium/fast | Higher rates or fees | Depends |
Most buyers usually combine several of these methods. For example, you can use a bank/SBA loan for the bulk, seller financing for part, and some equity from you or an investor.
1. Bank Loans And Guaranteed Loans
This is one of the most popular options that buyers depend on to fund their business acquisitions. To make it easy for you to understand, we’ll categorize this option into:
Traditional Bank Loan
As the name suggests, this involves approaching a bank and letting them know you want to buy a business, and asking for a loan.
The bank looks at your credit, your experience, the business’s past earnings, and collateral.
If they agree to go ahead with your request, they lend you money and you pay back with interest.
Pros: Interest rates can be lower, longer terms are possible, and you may keep full ownership.
Cons: Tough to qualify, heavy paperwork, and banks see business acquisitions as risky.
SBA/Government-backed Loan
In the U.S., many small business acquisition loans use SBA backing.
The SBA doesn’t lend directly, but guarantees part of the loan, so banks feel safer.
Nearly 95% of bank loans for small business acquisition use an SBA or a guarantee structure.
The fact that SBA backed $56 billion in new small business financing in fiscal 2024 alone is sufficient proof of how they make it easy for buyers like you to acquire an established business.
Pros: Lower down payments, better terms, more chances of approval.
Cons: More rules, more documentation, longer process (usually 30–90 days).
2. Seller Financing
Seller financing is another popular financing method used by acquisition entrepreneurs to buy businesses.
In this case, the seller agrees to lend you part of the purchase price of their business. As such, you’ll need to pay the seller over time (a “seller note”).
Many small business sales include seller financing (in 10–20% ranges).
Pros: Faster, less red tape, the seller has an incentive to make the deal work.
Cons: Seller needs to trust you, interest may be higher, and terms shorter.
NOTE: If you go with this method, you’ll want to negotiate interest, duration, collateral, and default terms carefully.
3. Investors, Partners, Or Equity
Instead of taking on debt, you may consider bringing in capital partners or investors. They give you money in return for a share of ownership or profit.
This could include friends, angel investors, venture capital firms, or private equity groups.
Pros: No monthly debt payments, risk is shared, no huge personal burden.
Cons: You give up control and profits. Investors will want a say in decisions. Also, you must show strong growth prospects.
Still at it, there’s also something called a search fund, where you raise money specifically to find and buy a business.
This is a popular setup in some markets for entrepreneurs who want to acquire a company but don’t have all the funds up front.
We Help You Buy / Build, Manage and Scale E-commerce Brands for an EXIT
E-commerce Simplified for Busy Individuals – We handle the buying, building, and scaling, so you can focus on what matters.
Growth-Focused Strategies – From sourcing to marketing, we drive growth and prepare you for a profitable exit.
Expertly Managed Exits – We build a high-value brand designed for a Lucrative exit.
Other Alternative Financing To Consider
There are a few non-traditional ways to finance a business purchase outside of banks and standard loans. These include:
Asset-based lending: you borrow using business assets (equipment, inventory) as security.
Mezzanine debt: This is a hybrid between debt and equity.
Grants or public programs (depending on the country) for acquisitions in underserved regions.
Crowdfunding or peer lending, in some cases.
Earnouts: Part of what you pay depends on the future performance of the business. In Q2 2024, earnouts remained above historical averages as buyers/sellers try to bridge valuation gaps.
These methods often have a higher cost or more risk, but they can help you fill gaps when traditional debt won’t cover the full price.
How To Prepare So You Can Get Financing
Each of the financing paths we have just discussed above demands preparation. Here’s what you should do to prepare yourself well in advance:
Personal credit and financial history
Lenders will check your credit score, debt levels, and past business or personal finances.
Business plan and projections
Show how the acquired business will generate cash to pay debt. Provide realistic income, expense, and growth forecasts.
Due diligence on the target business
Examine financial statements, tax returns, customer contracts, liabilities, and operations. You need confidence in what you’re buying.
Down payment/equity injection
Lenders expect you to put in some of your own money. For SBA or bank deals, this often is 20–30% or more.
Collateral or guarantees
Some financing options may require you to pledge property, equipment, or sign personal guarantees to secure the loan.
Clean documentation and organization
Keep your financial documents, tax returns, asset lists, and legal contracts all in order. That speeds up approval.
Strong management team or experience
If you have experience in the industry or the ability to lead, lenders view you as lower risk.
Common Mistakes To Avoid When Choosing A Financing Method
Even the best business plans can fail if you make basic financing mistakes.
Here, we walk you through some of the most common mistakes you should be aware of:
Underestimating costs: Many buyers forget about hidden expenses like renovations, legal fees, or working capital, leaving them short on cash soon after the purchase.
Overestimating revenue: Assuming sales will rise too fast can lead to over-borrowing and cash flow problems when income is lower than expected.
Picking financing you can barely afford: High payments or short loan terms can strain your finances and hurt day-to-day operations.
Giving too much control to investors: Allowing investors too much say can limit your freedom to run the business your way.
Ignoring the time it takes to close: Loans often take 30–90 days or more to finalize, so rushing the process can risk losing the deal.
Skimping on due diligence: Failing to review the business’s financials, debts, and contracts carefully can lead to costly surprises later.
Final thoughts
Getting financing for buying a business is possible, and there are many different options to consider.
We advise you to start with popular options like bank or government-backed loans if available, use seller financing to fill gaps, or bring in investors when needed.
Remember to do your homework (clean finances, good plan, solid due diligence) to increase your odds of success.
We Can Help You Buy A Profitable Business:
At Trend Hijacking, we help you buy a profitable e-commerce business quickly and confidently.
Our Smart Acquisition services guide you through every step—from finding the right business to completing the deal—in as little as 60 days.
You don’t have to figure it out alone. Let our team handle the hard parts so you can focus on running your new business successfully.
A Done-For-You E-commerce Business
Discover how we Build, Launch, and Scale a 6-figure/month Business for You
Learn more
The 6-Step Blueprint to E-Commerce Acquisition
See how we Acquire, Convert, and Scale with Real Case Studies to Prove It.
