How to get a loan to acquire another business?

Entrepreneurship does not always mean introducing a new product or starting a new venture from scratch. Sometimes, entrepreneurs find opportunities to purchase a well-established business, and this can be a great decision if they have knowledge in the particular business field. However, once you have identified such opportunities and made the decision to acquire a perfect business, the next question arises: from where you should take funds?

Although there are some banks and financial institutions that provide business acquisition loans to such entrepreneurs, there are banks that offer business loans to new businessowners as well, who do not have any income proof when applying for loans. On that note, let’s explore the process to get a loan for business acquisition, eligibility criteria, which are the banks offering the same and what are their interest rates to avail business loans.

How to apply for a business acquisition loan

To get a business loan for acquiring a business in India, you can follow these steps:

• Before deciding, whether to acquire a business or not, you should always ensure that the money you invest is worth what the seller asks for. To be sure, you can also hire a professional who may help to evaluate the business. Thereby, providing you with a well-versed business financial health report of the business you will be acquiring and any other future risks that may be associated to the purchase.
• To apply for a business acquisition loan, compare all the financing options you may have and opt for the one that best fits your goals. As there are several types of business acquisition loans available in India, that we will be discussing below. These include business loans, MSME loans, asset-based loans (Loan Against Property), Small Business Administration (SBA) loans, etc. Apart from this, there are other alternate funding options available in India.
• After choosing the best loan as per your requirements, check the eligibility criteria, documentation requirements, and other terms and conditions before applying for a loan.

Finally, the last step is to fill out your loan application form. Also, do remember to read carefully all the loan requirements, before submitting an application for a business acquisition loan.

Comapring interest rates of banks/ FIs for business acquisition loan

Eligibility to get business acquisition loan in India

For an established business, it becomes easier to get a loan as compared to a start-up business. The only new thing coming into the equation is the new business owner. However, there are banks and institutions in India that always go with high credit scores. A good credit score of a minimum of 680 is required to get approval for further loan process. The lenders may see the experience in the field of business the entrepreneurs buying. They may also look for the personal finances of the person and how well the person has managed their own money can be an indication of how well the person is going to run the new business.

In addition, lenders may also ask for down payments that might be anywhere between 10 to 30% of the purchase price. If the person who acquiring the new business has prior experience of running the business, then the lenders may ask for the documentation to see the business ownership history as well. It will make it easy for the entrepreneur to get a loan. Besides, eligibility also depends on the current income of the person in India. A salary of person might be a great indication for knowing about the person’s eligibility and capability to repay the loan. Let’s take an example of HDFC Bank eligibility criteria and document requirements before applying for business loans to acquire a business.

HDFC Bank eligibility criteria

Here are the eligibility criteria for HDFC Banks’ business loan acquisition:

• The minimum age of the applicant must be 21 years and must not be more than 65 years at the time of applying for the business loan.
• Any individual, proprietors, retailers, traders, partnership firms, private or public companies, or any other business owner engaged in business activities such as manufacturing products, trading sectors, or service providing are eligible.
• The business should have been making a profit for at least the last two years and should have a minimum annual income (as per ITRs) of at least ₹1.5 lakhs per annum.
• At the time of applying for HDFC Bank’s business loan, prospective borrowers should at least be 21 years of age 12.
• The creditworthiness of the business and promoter are also crucial when applying for a business loan. Besides, there should be no loan defaults in the past.

HDFC Bank document requirements

Here are some of the document requirements when applying for loans to acquire a buisness from HDFC bank:

• You must have a copy of the Aadhaar Card/Voter’s ID Card/Passport/Driving Licence/PAN Card/ as identity proof.
• You must have a copy of the address proof: Aadhaar Card/Passport /Driving Licence/Voter’s ID Card.
• You must have the latest ITRs.
• You must have bank statement for the last 6 months.
• Proof of continuation (ITR/ Establishment/Trade licence/Sales Tax Certificate)

Note: Please check with the bank for the latest document requirements and eligibility criteria at the time of applying for a business loan. Also, check and compare the interest rates, processing fees, and other terms and conditions before applying for a loan to acquire a new business.

Concluding thoughts

The selection of the most suitable business acquisition loan is necessary. Entrepreneurs are required to carefully examine the interest rates, loan amount, payback terms, eligibility requirements and other procedures. Additionally, before choosing any lender to get a business acquisition loan, it is essential to look at the financial needs and objectives so the entrepreneur can select the best business loan for the organisation, so they can use the money to run the business more smoothly.

Author: Charul Nalwaya

Charul is a content marketing professional and seasoned content writer who loves writing on various topics with 3 years of experience. At Tata nexarc, it has been 2 years since she is helping business to understand jargon better and deeper to make strategical decisions. While not writing, she loves listing pop music.