Summary: New entrepreneurs are often torn between buying an existing business versus launching a new company from scratch. Buying an existing business typically has a lower risk than starting a new company. However, this outcome depends on buying the right company and operating it successfully. The article discusses the advantages and disadvantages of buying a […]
Leveraged Buyouts (LBO)
Buying a Business? How to Pay for it
Summary: Buying an established business is a common way for first-time entrepreneurs to get into business ownership. It’s a strategy that has lower risk because buyers can review past performance and, consequently, be better able to forecast performance. When executed correctly, this strategy can help the buyer acquire a company with solid potential. However, buying […]
How Much Money do You Need to Buy a Business?
Summary: Buyers, sponsors, and managers often want to know how much money they will need to acquire a company. They may be trying to gauge the size of the company their funds can acquire or the scale of the equity injection. Ultimately, it’s the same question. The answer to this question depends on many factors. […]
Advantages & Disadvantages of a Leveraged Buyout
Leveraged buyouts (LBOs) are a popular way to finance business acquisitions by using debt financing. This article focuses on the pros and cons of using an LBO to buy a small business. We discuss the following: For a detailed explanation of LBOs, read “What is a leveraged buyout?“ 1. Leveraged buyout advantages When used correctly, […]
What is a Leveraged Buyout (LBO)? How Does it Work?
Summary: A leveraged buyout, commonly called an LBO, is a type of financial transaction used to acquire a company. Leveraged buyouts combine substantial debt financing with a small equity component from the buyer. Buyers typically use LBOs because debt amplifies the results of their investment. However, this feature can be a drawback if the acquisition […]
Requirements for a Business Acquisition Loan
Summary: Business acquisition loans backed by the Small Business Administration (SBA), typically through the 7(a) program, have the simplest qualification requirements. Unfortunately, this has led to misconceptions. Qualifying for these loans is easier than qualifying for conventional acquisition loans. However, they are not easy to get. Lenders evaluate these opportunities carefully to ensure they meet […]
Leveraged Buyout Financing for Small Businesses
Most people consider leveraged buyouts as an option that can be used only to acquire larger businesses. However, nothing about a leveraged buyout (LBO) is specific to larger businesses. The concept can be – and often is – used to acquire smaller companies. In this article, we discuss: 1. What is a leveraged buyout? A […]
Equity Injection Sources – Business Acquisition Loan
Summary: Most business acquisition lenders require that buyers of a business provide a down payment, often referred to as an equity injection. The equity injection requirements range from 5% to 30% of the total transaction value. The percentage varies by transaction based on the details of the opportunity. In this article, we discuss: 1. Why […]