A total of 96 business buyers offer their experience in the latest BusinessesForSale.com buyer survey, which seeks to understand how buyers funded or plan to fund their business acquisition.
So, how are buyers financing a business purchase in the UK? Here are the most popular finance methods.
Cash is (and will always be) king
Most participants used or will use cash to finance part of their business purchase. Having access to liquid cash during economic uncertainty can be valuable, as it offers financial flexibility to overcome challenges and buy other assets quickly.
Home equity finance
Another way buyers are financing or plan to finance part of their business acquisition is through home equity. Home equity is an accessible source of funding for many home-owner entrepreneurs who are looking for alternative sources of finance. Of course, using your home as collateral to secure finance has risks that are important to understand.
Bank loans are the third most popular method to finance a business acquisition. While this method of finance works for some business buyers, it can be a daunting and challenging process. Lenders will require a perfect credit score, personal guarantees, and multiple financial documents to assess your eligibility.
Seller financing is the fourth most popular finance source to buy a business. This amortised loan is provided by the seller and is a practical and relatively easy method of financing. However, you can expect a rigorous due diligence process from the seller.
Other key insights from the survey include:
- The tertiary sector of the economy is what buyers are most interested in. Hospitality, food related businesses, and property-based businesses that offer services are in high demand.
- The South East is the most sought-after region, followed by London, West Midlands, and South West.
- Buyers’ biggest concerns when purchasing a business are undisclosed issues, access to finance, inaccurate valuations, and owner reliance.
- Participants said the hardest aspect of raising finance was knowing which lenders will approve financing, followed by rising interest rates.
“It is no surprise to see that lender approval topped the lists of the hardest aspects of raising finance,” says Henry Ejdelbaum, Managing Director of ASC Finance for Business. “Knowing which lenders are willing to lend, and how to correctly present and navigate an application through their processes remains challenging for borrowers. This is one of the ways that a broker can really add value, helping borrowers navigate the maze of lenders and taking away the hassle from the whole process,” he continues.
If you would like to understand more about the best sources of finance to buy a business, you can read our loans to buy a business guide.