If you want to purchase a “ready-made” business but can’t afford it, you can apply for a loan to purchase an existing business. On the surface, everything is tempting. However, there are many pitfalls that are almost invisible to an inexperienced investor.
Banks always reduce possible risks to a minimum. To avoid losses in case of the unsuccessful running of an existing business, the borrower must issue collateral in the form of the purchased property and, preferably, the assets that he had before (business, real estate, etc.).
As a result, the value of the collateral (of course liquid) should not be less than the amount of the loan given out.
But the banks don’t always accept the collateral. They have to implement collateral every time the borrowers can’t pay off the debt. Therefore, the profitability of the business itself will be an important factor.
Imagine the situation: a business owner was trying to obtain a bank loan to fund the purchase of a new business facility but the bank denied the request. Probably, the creditworthiness of the borrower wasn’t substantial. Unfortunately, not only the size of the income pays a role – the net profit does.
These were the common problems you can face when trying to get a loan to purchase a business. There are different ways and sources for this loan. You can get help from the SBA. Their loans will suit businessmen, who are looking for longer loan terms but lower interest rates. Familiarize with SBA loan requirements for business purchase loan and find out about other beneficial resources of the financial help.