As the economy continues to improve, the purchasing of existing businesses has increased hugely in the last few years. For most, however, this is not possible without funding, which can still be difficult to access. Thankfully there are many options available, from the traditional loan providers of the high street banks to alternative models, such as peer to peer funding typically associated with start-ups.
Advantages of Purchasing an Existing Business
There are many advantages to buying an existing business over trying to get a startup off the ground. An existing business should already have a working model, clients, reputation and hopefully a credit rating that can help you secure a loan for its purchase. This is obviously not the case for all existing businesses and the value of it will relate to all the above as well as its potential to grow. It is, therefore, vital that your loan application contains profound knowledge of all these aspects of the business as well as a detailed plan for its future.
There are many funding options available to potential business owners in the 21st century, meaning there is far more support, both financial and advisory, for potential purchasers. Each funding method has its own advantages and disadvantages and there is great variety even within each option. It therefore pays to research your options thoroughly in order to get the best deal. Some options include:
- Crowdfunding and Peer to Peer Investors
- Small Bank Loans
- Large Bank Loans
Crowdfunding and Peer to Peer Investors
Crowdfunding or peer to peer lending is one of the fastest growing methods of funding for all types of businesses. As the high street banks still practice a high degree of restriction in the amount of funding they provide, these more accessible methods of borrowing have become a vital source of funding for many.
Funds can be accessed through one or many investors, and terms and conditions can be tailored to suit most needs. Rates will largely depend on the risk to the lender, so it is essential that you present your business plan in the most thorough way possible. Costs will also depend on the value of the loan and term lengths.
Small Value Loans
High street banks provide an array of loan options for UK businesses. The small bank loan is a lower valued loan taken out over the short term and are suitable for those who already have much of the necessary funds or who are looking to purchase a small business that is affordable with such a loan.
Small business loans are also available from alternative financiers and these can sometimes provide the lowest rates and least restrictive terms, such as no early repayment penalties or setup fees. What’s more, repayments can be set at a rate relative to your turnover, allowing some leeway, particularly in the early part of the running of your new business.
Large Value Loans
While some alternative funding providers, such as Funding Circle, do provide high value finance, the most likely and varied providers are traditional high street banks.
High value loans will often have specific features that are not common with other loans. Secured loans, for example, are those that require assets being put up as liability in order to protect the financier from the higher degree of risk associated with such loans. This will often mean property, either private or commercial.
Another consideration is interest rates, which can be fixed or variable. For long term loans, fixed rates are generally preferable, but as fixed rates are set nationally, this is not always the case and will require some research.
As previously mentioned, there are many options available to those who wish to seek out funding in order to purchase an existing business, but not all are reputable. There is also the fact that each funding method, provider and loan itself is unique to the situation and the business accessing it. While all these things need to be taken into consideration, the following are some of the most renowned within the industry:
- Funding Circle
- Lloyds Bank
Funding Circle are simply one of the largest peer-to-peer funding providers in the world, with over £1.6bn lent to UK businesses as of 2016. Like Zopa, loan values account for all types of necessities, including the purchase of existing businesses. With no early repayment penalties, they are also one of the least restrictive.