How Much Can I Borrow to Buy a Business?

Buying a business is an exciting opportunity—it’s a chance to take ownership of your future and grow something extraordinary. But before you can make that dream a reality, there’s one big question to answer: How much can you borrow? Determining your borrowing potential is often the first hurdle, and it depends on various factors, from the type of lender you work with to the structure of the fund itself. In this guide, we’ll break down the most common financing options available, the factors lenders consider when determining funding amounts, and tips to help you navigate the process with confidence.

Understanding Business Funding Options

When it comes to funding a business acquisition, you have many options. Each funding type has unique terms, eligibility criteria, and benefits. Here’s an overview of the most popular lending avenues:

SBA Loans

Small Business Administration (SBA) loans are a top choice for borrowers looking to secure high amounts of funding. Backed by the government, SBA loans provide a safety net for lenders, making them willing to offer favorable terms and lower interest rates. These loans often require a strong credit history, a solid business plan, and collateral, but their long repayment periods and lower rates make them worth considering for eligible borrowers.

Online Lenders

If speed and flexibility are your priorities, online lenders might be your best bet. These lenders often cater to businesses that may not meet the strict criteria of traditional banks. Approval processes are fast, and borrowing amounts range widely, making this option attractive for entrepreneurs needing quick access to capital.

Traditional Banks

Conventional loans from traditional banks are ideal for borrowers with established credit and strong financial histories. While these loans are reliable and often come with competitive rates, the approval process can be lengthy, and requirements are typically more rigid. If your business checks all the boxes, a traditional bank loan might be a solid choice.

Business Line of Credit

A business line of credit provides unparalleled flexibility for ongoing funding needs. Much like a credit card, you’re approved for a maximum limit and only pay interest on the funds you actually use. This makes it an excellent tool for managing unexpected expenses, addressing seasonal fluctuations, or maintaining steady cash flow as you work to grow your new business.

Alternative Financing Strategies

Not every business qualifies for traditional funding, but that doesn’t mean opportunities are out of reach. Alternative financing strategies provide innovative and accessible solutions to help you secure the capital you need.

Invoice Financing and Invoice Factoring

Outstanding invoices don’t have to tie up your cash flow. With invoice financing, you borrow against the value of your invoices, maintaining control of your accounts receivable. Invoice factoring, on the other hand, involves selling those invoices to a financing company in exchange for upfront cash. Both methods can be game-changers for businesses dealing with slow-paying customers or seasonal revenue dips.

Revenue Based Financing

At Mantis Funding, we specialize in revenue-based financing, a flexible solution designed for businesses with steady revenue streams. Unlike traditional funding with rigid payment schedules, this approach ties payment to your business’s future revenue. This approach allows you to access the capital you need to grow without sacrificing your cash flow or financial stability. It’s an ideal choice for businesses looking for adaptable funding that grows with their success.

Factors Influencing How Much You Can Borrow

When it comes to determining your borrowing limit, the majority of traditional lenders evaluate several key factors to assess risk and repayment potential. Understanding some of these common elements can help you better prepare for the application process and increase your chances of approval.

Collateral

Offering collateral, such as property, equipment, or inventory, can help you secure more funding on better terms. These assets reduce the lender’s risk, which may allow them to approve a higher borrowing amount or lower interest rates. Collateral signals to lenders that you’re serious about financing and have a fallback plan if repayment becomes a challenge.

Personal Guarantee

A personal guarantee adds an extra layer of assurance for lenders. This requires you to pledge personal assets, like savings or property, to back the funding. While it demonstrates your commitment to the funding, it also introduces a degree of personal financial risk. It’s important to fully understand the implications of a personal guarantee and ensure it aligns with your financial situation and confidence in the business’s success.

Revenue Considerations

Your annual revenue plays a pivotal role in shaping your borrowing capacity. Many lenders establish minimum revenue thresholds, which can vary widely depending on the financing type and lender. These benchmarks often range from $30,000 to $250,000 annually. Consistent and verifiable revenue reassures lenders that your business has the cash flow needed to support repayment. Knowing your revenue standing helps you target lenders whose requirements align with your financial profile.

Calculating Costs and Terms

Before committing to any funding, it’s essential to evaluate the total cost and repayment structure to ensure it aligns with your financial goals.

Calculator

Simulate your borrowing scenario with a financing calculator. This tool can help you understand monthly payments, interest costs, and how terms affect your budget.

Interest Rates and Fees

Interest rates and application fees vary widely depending on the lender and funding type. SBA loans typically offer the lowest rates, while online lenders may charge more for the convenience of fast approval.

Repayment Schedules

Flexible repayment schedules can make or break your cash flow. Compare weekly, bi-weekly, and monthly options to find what works best for your financial planning.

Mantis Funding’s Revenue-Based Financing Application Criteria

Mantis Funding offers flexible, personalized revenue-based financing for those who meet the following criteria:

• Your business has been operational in the U.S. for more than six months.
• You own at least 50% of your company.

While we do perform a credit check, you don’t have to have a perfect score to qualify—we accept low or less-than-perfect credit!

Conclusion

Understanding your borrowing options is the first step toward successfully buying a business. From traditional loans to alternative financing strategies, each option offers unique benefits and considerations.

At Mantis Funding, we’re here to guide you through the process and provide flexible solutions like revenue-based financing to meet your needs. Ready to explore your options? Contact us today, and let us help you turn your business ownership dreams into reality.

About Mantis Funding

Mantis Funding is a business financing solutions firm catering to small and mid-sized business owners in the United States.