Generally, business acquisitions require the borrower to put 20 percent of the equity down. In the case of big ticket deals of over $1 million, these down payments can be extremely steep. Amid an economic downturn with waning business valuations, this is a critical time to explore financing channels.
In case a higher percentage is required or a higher loan to value (LTV) is not granted, there are less conventional cash flow instruments available. An Unsecured line of credit is a great option. This form of financing can be raised by non-cash based businesses that are at least 2 years old. An unsecured line of credit has no prepayment penalties and overall is the cheapest way to meet a capital shortfall.
An advance against credit card receivables is a quick way to access cash and meet an LTV shortfall. Unfortunately, credit card receivables financing can be more expensive than other financial products.
Seller financing may even cover 10 to 15 percent of the overall equity component. The seller can even defer capital gains taxes, strengthening the case with lenders.
For a last resort, borrowers can use a home equity line to finance the down payment or take a term loan against their insurance policy. However, these forms of financing should be used sparingly.