How to Get a Loan to Buy an Existing Business: A Step-By-Step Guide

Table of Contents:
Step 1: Find a Business Broker
Step 2: Evaluate the Existing Business
Step 3: Determine Your Financing Needs
Step 4: Research Lenders and Loan Options
Step 5: Prepare a Solid Business Plan
Step 6: Gather the Necessary Documentation
Step 7: Submit Your Loan Application
Step 8: Finalize the Loan and Close the Deal
Step 9: Choose TEDC Creative Capital for your Business Loans

Have you come across an opportunity to purchase an existing business? It’s possible that you require some financial assistance to finalize the deal. If you’re interested in how to get a loan to buy an existing business, get your calculators and business plans ready because we’re giving you a step-by-step guide.

Step 1: Find a Business Broker

Engaging a business broker to help identify potential business acquisition opportunities is the first step to buying an existing business successfully. Like a real estate broker, a business broker relies on their network of potential buyers and sellers to facilitate the sale or purchase of a business and operates in an intermediary capacity. The goal of a business broker is to match the right buyer with the right seller resulting in a mutually beneficial transfer of ownership. Having someone working on your behalf to handle the back and forth between parties allows you to stay focused as you evaluate each business opportunity for the best fit. 

Step 2: Evaluate the Existing Business

Before applying for a small business loan, it’s crucial to conduct a thorough evaluation of your prospective business. This investigation should involve analyzing every aspect of the company, and you should leave no stone unturned.

Conducting Due Diligence on the Existing Business

Before making a business purchase, it is essential to thoroughly review and consider various aspects. These may include:

• Legal Documents
• Contracts
• Licenses and Permits
• Intellectual Property
• Income Statements
• Cash Flow Statements
• Balance Sheets
• Tax Records
• Assets and Inventory
• Customers
• Suppliers
• Employee and Human Resources
• Litigation and Legal Issues

Understanding the state of the business in detail will help ensure compliance with regulations and flag any issues with cash flow or legal trouble. You may want to leverage the expertise of your business broker so they can offer their expert opinion. 

Assessing the Current Market Position and Growth Potential

After digging deep, take a broad look at the competitive landscape. Consider the business’s position in the market and understand its place in the industry. It’s also important to study the competition! Take a moment to reflect on these factors. 

Will the business’s product or service remain relevant for customers into the foreseeable future? Are there untapped markets or expansion possibilities? These aspects of the business can help you determine if taking on the debt of purchasing the business will pay off. 

Identifying Potential Risks 

This is no time for blind optimism. Keep a careful eye out for any red flags that may jeopardize the business’s success. Owners can sometimes overlook common expenses that need to be checked, so it’s crucial to communicate with third-party services that are vital to the company’s operation, such as payroll and tax professionals.

Are the payroll taxes up to date? If not, it falls to you to settle the tab as the new owner. Is it possible that the current owner has unpaid debts? In that case, the collectors will come to you for payment if you purchase the business. You should avoid surprises like these at all costs.

It’s also important to take into account various factors, such as dependence on a sole major client or supplier, as well as assessing risks like high employee turnover or relying on outdated technology. Carefully evaluate and address any potential issues before making any financial moves. These are questions you should know the answer to for your own benefit, and your lender will likely want to know as well. 

Step 3: Determine Your Financing Needs

If you’ve decided everything’s on the up and up and this business is a good investment, it’s time to get down to some number crunching. In this step, you’ll determine exactly how much money you’ll need to acquire this business. 

Assessing the Total Cost of Buying the Business

Take a peek at the price tag and get a professional business valuation that gives you a good idea if the price is right. Consider not only the purchase price for the business and how long it will take you to recoup your investment expenses but also what’s included in the purchase price, such as intellectual property or real estate. Remember, you’re not just buying the name of a business and waiting for the money to start rolling in; you’re taking over an entire operation. 

You may also want to consider purchasing all of the assets of a business and operating under your own LLC or Corporation. This can help protect your personal assets from unknown debts or legal issues that were present before your ownership. 

Evaluating Your Personal Financial Situation

Thinking of purchasing an existing business presents a good opportunity to review your personal financial status. What assets or collateral do you have? Have you established any business credit history? Is your personal credit score high enough to qualify for a loan? It’s important to understand your personal finances in order to determine if your project is feasible given your current financial situation. Working with a business partner may also be a helpful option before seeking financing.

Identifying the Amount of Loan Required

By now, you should be aware of the total cost of the business, the amount required for any necessary upgrades, and the amount of capital you have available. 

It’s time to calculate the loan amount needed to bridge the gap. 

Subtract your available funds from the total acquisition cost, and voila! You’ve got the magic number – the loan amount you’ll need to own the business.  

When looking for funding, it is crucial to be precise and practical in evaluating your financial requirements. Many times borrowers underestimate what will be necessary to move forward or, worse, pull a number out of thin air. 

Be sure to consider every detail, including reserving funds for unexpected costs, legal fees and your own salary. You don’t want to fall short as you work to close the deal while simultaneously keeping the business rolling, but you should also avoid unnecessary debt in doing so. 

Step 4: Research Lenders and Loan Options

After you’ve figured out how much you’ll need to purchase the business, explore the loan options available to you. Start by looking at traditional financing institutions like banks and credit unions. You might find the perfect loan package for your needs. 

SBA Loan Options

Many traditional banks offer at least some type of Small Business Administration (SBA) Loan that can help with many different business needs and may provide more funding than you can get with a traditional bank loan.

Community Development Financial Institutions

If you have trouble qualifying for the necessary loan amount with a traditional bank or credit union, a Community Development Financial Institution (CDFI) may be a great option that can still help you get the capital you need. 

CDFIs like TEDC Creative Capital may have more flexible loan requirements and a more diverse array of loan products available to help you get a business loan, including SBA loans and other business financing options. These institutions can also help ensure your repayment terms align with your projected cash flow and help set you up for success in your new venture.

Step 5: Prepare a Solid Business Plan

Now it’s time to strategize your way to the top. A strong business plan is crucial to keeping a profitable business thriving or recalibrating to get on the right path.

Outlining the Business’s Current State 

Begin by outlining the current state of the business you’re considering purchasing. Provide a comprehensive overview of what product or service it offers, how it’s doing financially, and who it targets as potential customers.  Highlight the business’s history and any strengths or advantages within the marketplace. 

Creating a Roadmap for a Smooth Transition

When buying a business, you should outline the steps for transferring control. Consider legal aspects, any personnel transitions, and even client or customer relations. Planning ahead will help you navigate potential challenges and minimize disruptions.

Identifying Areas for Improvement of the Existing Business

Taking a visionary approach can serve you well when sharing your plans for buying a business. Identify areas for improvement or expansion and have open and honest conversations with the current owner on what has or hasn’t worked in the past. You may handle things differently. However, it’s important to value the wisdom of real-life experience. 

Step 6: Gather the Necessary Documentation

At this point, you have determined this business is a good fit for you, and you’ve assessed how much you’ll need to make the purchase. You’ve also established a clear and documented understanding of the business’s current condition and a plan on where you can take it.  

Now it’s time to get to the nuts and bolts. The lending process will go smoothly and swiftly if you gather all the required paperwork and documents before you apply. 

Personal Identification Documents 

It likely goes without saying, but your personal identification documents should be readily available. You’ll also need your social security number, which is essential for verifying your identity and establishing your financial history.

Financial Documents 

Next up, and not quite as simple – you’ll need financial documents. Gather your personal tax returns and business returns if you’re using a registered business to purchase the existing business.  

In addition to tax returns, gather bank statements and financial statements for the last two years. These statements should showcase your and your business’s financial activity and provide lenders with an overview of your cash flow and savings. 

Legal Documents

If you’re already in the process of buying the existing business, keep your pending purchase agreement on hand for your lender to review. They may have questions about exactly what’s covered in the agreement, or they may want to review the terms of the contract.  

Make yourself a checklist, if it helps, to stay organized and on top of everything. 

Step 7: Submit Your Loan Application

In this step, we’ll cover the key actions needed to ensure a strong and complete submission. So, polish your pen and get ready to make a lasting impression on potential lenders.

Completing the Loan Application 

Take your time to complete your loan application accurately and thoroughly. Provide accurate and detailed information about yourself, your business, and the purpose of the loan. Double-check your entries for any errors.

Attaching the Required Documentation

Remember that treasure trove of documents you gathered in Step 5? You should already be prepared to attach all of the required documentation to your loan application for streamlined application submission. 

Following Up With Your Lender

Once you’ve submitted your loan application and attached the required documents, take the time to confirm receipt of your application and inquire about the expected timeline for review. The lender may request additional supporting documents. Be responsive and work quickly to reply for the best possible outcome for your loan application. 

Throughout this process, maintain clear and open lines of communication with the lender. Be upfront and honest about any potential issues because it’s likely they’ll find the information anyway. If they understand the complete picture up front, they can help figure out the best course of action. 

Remember, a well-prepared and complete loan application sets you apart and speeds up your review process. By ensuring accuracy, attaching the required documents, and following up with the lender, you make your loan process much simpler. 

 Step 8: Finalize the Loan and Close the Deal

So your loan request has been approved, and it’s time to wrap things up. Make sure you read over the documents carefully and discuss them in detail with your lender. If you work with TEDC Creative Capitals’ lending team, you can be sure the expectations for repayment are discussed in detail so there won’t be any surprises. 

Reviewing the Loan Agreement 

If you feel uneasy about a loan, don’t be in a huge rush to sign your name on the bottom line. An ounce of prevention is worth a pound of cure. Have a local contract lawyer review the terms and discuss them with you to ensure you have a thorough understanding of your loan terms so you can make an informed decision. 

Closing the Loan and Completing the Business Acquisition Deal

The loan is finalized, and the deal is sealed. Your aspirations of owning the existing business are being realized. Take a moment to celebrate the milestone and move forward with confidence and determination on making your business a success. If possible, continue your relationship with the former owner for a scheduled amount of time as you smoothly transition the business into new ownership and, possibly, new leadership.

Step 9: Choose TEDC Creative Capital for your Business Loans

With these steps outlined on how to get a business acquisition loan, you hopefully have a better idea of how to take action and pursue your entrepreneurial goals. If you’re seeking financial support that may need flexible collateral or credit history requirements, consider applying for a loan with TEDC Creative Capital. 

The TEDC Creative Capital lending team specializes in empowering entrepreneurs like you, providing the funding needed to turn your vision into a winning business. Apply for a business loan today and let TEDC Creative Capital fund your entrepreneurial success.


Security Bank is an independent, locally owned financial institution investing in the growth and success of people while preserving the community banking culture since 2000. We are a full-service bank for business and personal. We value honesty, integrity and customer satisfaction by providing quality products at fair prices and an authentic banking relationship you can depend on. Experience the difference at Security Bank. Visit us online or stop by at 10727 E. 51st St., off exit 51st on Highway 169.

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