Acquisition finance is called a change of control loan
. This type of loan allows you to sell or acquire a business. What often happens with acquisition finance is you need to find a lender that is able to provide you with the funds you need even if the assets being purchased are worth more than the actual purchase price. This can be a challenge because some lenders may be worried about losing money while others see that a considerable amount of money will need to be written off to goodwill. Look for established lenders when you need acquisition finance as young lenders may not be making the money you need in order to develop the company.
Financing goodwill is hard because it is difficult to predict what the future profits of the business will be. Some lenders are okay with financing goodwill while others see this as a high risk and they arent going to touch it. When you deal with financing goodwill, you are going to need to raise the down payment or acquire the funds necessary from a vendor.
In order to acquire these funds, you need to have a good corporate credit rating along with a solid business plan. If you have all your information ready, it will be much easier to convince a lender why they need to offer you the financing you need.
What is the transition risk? This is a common concern for lenders as they need to see how the business has been run and how the new owners plan to run the business. Are there some key employees that plan to remain with the company and help it run successfully? Growth potential is the key to acquisition finance and it will make or break your deal with a lender.
The age of the company will also be considered. Is your business on the rise, is it mature, or are you in a declining market segment? Will a change in control lose customers and weaken the market segment of the business? Lenders need be certain that your cash flow will remain strong and intact so they can see that you will make the payments. Their other concern lies with the probability of resale for the business.
When dealing with acquisition finance, you must provide at least one thirds of the purchase price in cash. Then you need to provide a tangible net worth for the remaining value of the loan.