Thinking of buying an established, successful business? Getting a small business loan for an existing business can be full of surprises. You’ll probably find different loan requirements depending on what type of business you’re buying.

The loan process may be different if you’re buying a turnkey business such as a medical or dental practice, a restaurant franchise, or a friend’s small business. This guide will tell you what you need to know about getting a loan to buy a specific kind of business.

Small Business Loans to Purchase a Medical or Dental Practice

Physicians and dentists looking to start their own practice often consider purchasing an existing practice. For most, the goal is to purchase a practice that already has patients (i.e., a customer base) rather than to grow a business over many years.

Before you look for financing, ask yourself and the current owner these questions – and others – from the American Osteopathic Association’s The DO:

  • Is there a specialty or common treatments for patients?
  • Is the practice set up for growth?
  • Does the location come with the practice? Will you have to transfer a lease?
  • How was the business valuation process to set a purchase price? What metrics were used to determine market value and set the asking price?
  • What is the current cash flow of the business?

Finding Loans to Buy an Established Practice

Once you’ve determined that a practice is a good fit for you, both financially and professionally, your small business loan search begins. You will likely need to create a business plan. Luckily, many lenders are willing to offer loans for medical practices. This is due to the high earning potential of a medical or dental practice. The more likely you are to bring in profits, the more likely you’ll make your loan payment each month.

When purchasing someone else’s practice, some of the details of the practice are already in place. These details can either be advantages or disadvantages when finding a loan. For example, a convenient location may make it easier to prove profitability.

Steps to Funding Your Medical Office Purchase

There are steps you can take to make securing a loan for your practice purchase easier. Before applying for a loan, make sure you have information on the practice, including:

  • Financial statements, including financial records like tax returns and profit/loss statements from the last 3-5 years.
  • A transition plan in place for introducing yourself to patients. This might state a period of time where you practice next to the existing owner.
  • Location details, such as whether you will own the office, lease the space, or if you need a new location.

The biggest thing to think about when looking to buy an existing practice is the relationship between yourself, the seller, and your potential patients.

Restaurant Franchise Financing

Buying a restaurant franchise may seem like an easy way to break into the restaurant business without much risk due to the franchise business model. Franchises, however, often come with a lot of extra costs. In addition to the costs that go with opening any new business, such as real estate, you’ll need to cover franchise fees and costs. For example, Pizza Hut requires a $25,000 initial franchise fee. The price only goes up depending on the gross sales of the store.

The good news is that there are many options for business owners to secure franchise financing. After carefully considering the pros and cons of opening a franchise, you’ll need to research which restaurant franchise is best for you. The Forbes list of best and worst franchises to buy is a great starting point.

How to Find Franchise Financing

When looking for franchise financing, you need to consider your options. Franchisor loans come directly from the restaurant brand, but usually have higher rates than other loans. SBA loans, traditional bank loans, and alternative loans are usually common choices for buying a restaurant franchise.

Before you can apply for a loan, you should know these key things about your finances and the restaurant chain you want to buy:

  1. Are you qualified? Most brands have qualifications, such as experience in management, for potential franchisees. Brands want to see that you know how to run a successful business.
  2. Your financial information, including your net worth and credit score.
  3. The initial investment amount and potential recurring costs for the restaurant franchise you want to buy.

According to the Wall Street Journal, an estimated 10% of all SBA loans go to franchises. An SBA loan, however, may not make sense for your situation. Alternative lenders may offer a better opportunity for franchise financing if you have a less than great credit score or need more money up front to buy your franchise.

Purchasing a Business From a Friend

Buying a small business from a friend may sound like a great way to dip your toes into entrepreneurship, especially if it’s an online business. After all, you’ve likely been around through the ups and downs of the business. You may even remember the steps your friend took to get the business started.

Purchasing a business from a friend works the way as purchasing any other existing business. The first step you must take for a successful transition of the business is to remove emotions from the transaction. Don’t let your personal relationship get in the way of making smart business choices.

You may want to discuss the sale with several business brokers so you have an objective third party involved. The broker will help you determine the value of the business. It’s not recommended that you receive seller financing from your friend as this may cause tension between you.

Set Boundaries

This business may be like a child to your friend. This is important to remember when you take over the business. Set boundaries in place up front after the sale. Have a plan in place for conversations you may have if you make decisions or changes your friend doesn’t agree with.

Likewise, you need to recognize that your friend doesn’t owe you free advice once the sale is made. If you find you need help from your friend, be willing to pay them as a consultant.

Do Your Research

When buying a business from a stranger you may feel uncomfortable asking certain questions. One of the advantages of buying from a friend is the change to ask questions openly. Some examples of questions you need to ask include:

  • What equipment is included in the sale?
  • Will your friend train you?
  • What are some potential areas of growth?
  • Why does your friend want to leave the business?

Getting Financing to Buy Your Friend’s Business

Finding small business loans to buy a friend’s business is the same process as any other small business purchase. You will want to look at all of your options, including SBA loans, traditional bank loans, and alternative loans.

One of the most important things to remember when looking for financing is the approval rate. Many traditional lenders are wary of giving out loans for small businesses. Just because a business was successful under one owner doesn’t mean it’ll be successful when you take over. This is taken into account by lenders and your personal financial history will play a big part in getting a loan.

Securing a Small Business Loan for an Existing Business

When it comes to financing the purchase of an existing business, the type of business can make a big difference in your loan options. You’ll need to consider your own financial situation and do your due diligence on the financial state of the business to choose the best small business loan for your purchase.

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