Mergers and acquisitions are a great strategy for growing your business. M&A deals can help you increase income and market share quickly and effectively. However, most businesses need small business financing solutions to close these deals. In this article, we’ll discuss acquisitions financing options and how an advisor can help you find the ideal option for your needs.
What Small Business Financing Solutions Exist for M&A?
Acquisitions are essentially purchasing a business and incorporating it into your current business. In the case of entrepreneurial acquisitions, it is purchasing an existing business to run as a way to jumpstart your success. Whatever the case for you, it means compensating the current business owner to take over their business and assets.
While you can certainly use cash to pay for the target company in full, most businesses will need some type of financing. There are many different small business financing solutions to choose from for your acquisition deal. A few popular M&A financing options include:
- Acquisition Loans: Loans are a popular option because they tend to be the most inexpensive in the long-term. You can choose M&A loans from banks or SBA-backed loans to fund your acquisition. However, keep in mind there are often many requirements to qualify, including strong financial history and sometimes even personal guarantees.
- Private Equity Firms: Private equity firms are another common financing option for M&A deals. These firms provide capital from private investors in exchange for equity in the company. Keep in mind that many firms only invest in certain industries. They also often have strict requirements to help lower risk to the firm.
- Earnouts: This type of financing is a more flexible option for funding your acquisition. It is based on the company’s continued success. An example would be that you pay the current owner 30% of the target company’s value up front and then continue to pay 15% of the value for five years after closing the deal.
- Leveraged Buyout: A leveraged buyout (LBO) is a riskier option for financing an acquisition. It involves using assets from both the current company and the target company as collateral for the funding needed to purchase the target.
What is the Role of Capital Acquisitions Advisory for My Business?
Of course, understanding the different options doesn’t mean you necessarily know which is best for your business. It also doesn’t mean you know exactly how to attain the right financing. This is where capital acquisitions advisory can help.
Capital acquisition advisory helps you determine the right type of financing for your needs. Advisors can also help you arrange for that financing. Your advisors rely on years of experience and financial expertise to help you decide what is best for your business. They may look at many different factors, including the value of the target business, your current company’s value, as well as financial histories and projections to offer guidance on the types of financing that may work well for you. Then, they can help connect you to lenders and investors that provide that financing.
Sabre Financial Group – Experienced Financial Consulting and Mergers & Acquisitions Advisory
At Sabre Financial Group, our team offers experienced advisory for businesses. Whether you need mergers & acquisitions advisory or business plan consulting for your startup, we have the skills and knowledge you need for success. We help small and middle market businesses across the U.S. and Canada plan for growth and continued financial success. Contact us now for a free consultation with our consultants.