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Business Acquisition Loans vs. Startup Funding

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  Published in Business and Finance on Friday, January 9th 2026 at 7:33 GMT by Wall Street Journal

Why Business Acquisition Loans Differ

Lenders approach acquisition loans fundamentally differently from startup funding. When evaluating a startup, they are essentially investing in an idea and the founder's ability to execute. With an established business, however, lenders focus on historical financial data, assessing the business's track record of revenue, expenses, and profit. This established history provides a degree of security that's absent with new ventures, but also comes with its own set of expectations. Lenders aren't simply interested in a good idea; they want demonstrable evidence of financial health and a realistic plan for maintaining - or improving - that performance.

Exploring Your Loan Options

Several avenues exist for financing a business acquisition, each with its own advantages and drawbacks:

• SBA Loans: The Small Business Administration (SBA) doesn't directly provide loans, but it guarantees a portion of loans issued by participating lenders (banks, credit unions, etc.). This guarantee significantly reduces the risk for lenders, making them more willing to extend credit to small business buyers. The SBA 7(a) loan is a common choice for acquisitions. Expect a down payment requirement typically ranging from 10% to 20%.
• Conventional Bank Loans: These loans are offered directly by banks and credit unions without an SBA guarantee. While potentially faster to secure than SBA loans in some cases, they usually come with higher interest rates and stricter eligibility criteria. A strong credit profile and substantial financial resources are often prerequisites.
• Seller Financing: This unique option involves the current business owner financing a portion of the purchase price. It can be particularly helpful when traditional financing proves difficult to obtain, but it relies on the seller's willingness and financial capacity. Negotiating terms - including interest rates and repayment schedules - is critical.
• Asset-Based Loans: These loans are secured by the assets of the business being acquired, such as inventory, equipment, or outstanding invoices. They are a viable option when the buyer has limited collateral outside the business itself, but the loan amount is directly tied to the value of those assets.

The Path to Approval: Key Steps

Securing a loan isn't a simple process. Here's a breakdown of the essential steps:

1. Thorough Due Diligence: Before committing to a purchase, meticulously investigate the business. This includes a professional business valuation, a detailed financial analysis (reviewing income statements, balance sheets, and cash flow statements), and a legal review to identify any potential liabilities or compliance issues.
2. Compelling Business Plan: Lenders demand a comprehensive business plan. This document should detail your operational strategy, target market analysis, competitive landscape assessment, and realistic financial projections (revenue forecasts, expense budgets, and profitability analysis). Demonstrate how you will leverage the existing business and identify growth opportunities.
3. Financial Housekeeping: A strong credit score is paramount. Lenders also expect a substantial down payment - typically 10% to 30% of the purchase price. Gather and organize your personal and business financial records (tax returns, bank statements, etc.).
4. Rate Shopping: Don't settle for the first offer. Contact multiple lenders, including banks, credit unions, and online lenders, to compare loan terms, interest rates, fees, and repayment options.
5. Loan Application Preparation: Be prepared to submit a comprehensive loan application package, including detailed financial statements, tax returns, a personal guarantee (potentially requiring you to personally guarantee the loan repayment), and the aforementioned business plan.

What Lenders Prioritize

Beyond the paperwork, lenders assess several key factors:

• Proven Profitability: A history of consistent profitability is the most critical factor. Lenders want to see that the business is already generating revenue and profit.
• Strategic Vision: Your business plan must demonstrate a clear understanding of the business and a well-defined plan for future growth and success.
• Capable Leadership: Lenders evaluate your management experience and expertise to ensure you can effectively operate and scale the business.
• Adequate Collateral: While not always required, offering collateral - such as business assets or personal property - can strengthen your application and improve your loan terms.