Acquiring a business acquisition loan for the purpose of growing and expanding your business or company has a certain set of prerequisites that need to be fulfilled beforehand. To acquire a loan from a bank is a little cumbersome, as banks usually only give loans to companies or businesses that are well established, have formal financial statements to present, and have the capacity to repay these loans.

SBA-guaranteed loans, on the other hand, are a little easier to get because of their guarantee to a financial institution that in turn gives the loan.

In this article, we have mentioned the requirements that are necessary to be met when applying for business acquisition financing or loan.

Personal Credit

While asking for a business loan, you should yourself have some decent amount of personal credit that you can show initially as equity. This credit would be used by the borrower to calculate a credit score on the basis of which you’d be granted a loan. Usually, a score between 650 and 690 have a better chance of securing financing.

Letter of Intent

This is a letter signed by the seller of the business which states the proposed terms of the acquisition. It contains a section advising the seller that the offer is contingent on the buyer finding adequate financing. This letter is then provided to the borrower who in return provides a term sheet which states the basic information regarding the loan.

Borrower Information Form

A form is required to be submitted which lists down all the owners, shareholders, guarantors, and key individuals in the business along with other sources of financings that have been availed by the business in the past.

Personal Statement of Finances

Let your lenders know about how much of your own skin you have in the game. Fill out all your information, information about your partners, or anyone with a minimum of 20% equity ownership of the company in the form. This will help determine your creditworthiness and repayment ability.

Personal/ Corporate Tax Returns

To get done with all the requirements you need to provide tax returns, both personal and corporate, for the past three years as part of the application process.

Financial Statements

You also need to provide formal business financial statements of the company or the business you plan to acquire with the loan amount for the past three years as part of the application process.

In addition to these, you need to provide a list of all the debt and liabilities of this business and your personal experience and expertise in the business that you are acquiring. This is to show and satisfy the lender that you’d be able to manage the operations of the acquired business properly and that you are low risk.

Down Payment

It is required to pay 20% of the total value of the business upfront as down payment in SBA loans as it shows that you are committed to acquiring that business and would use the rest of the loan amount on the operations and management of that business only.