Best Unsecured Small Business Acquisition Loans For Good & Bad Credit

In the early stages of most businesses’ growth, a company expands by acquiring new customers. But as time goes on, some businesses begin to acquire competing companies to expand their customer bases. This is known as business acquisition and, oftentimes, these transactions aren’t cheap. Fortunately, entrepreneurs who don’t have enough cash on hand to buy another company outright can use a business acquisition loan to take their company to the next level. If you’re curious about how small business acquisition loans work and how you can go about applying for one, here’s an overview of everything you need to know.

What Is a Business Acquisition Loan?

A business acquisition loan is a type of commercial loan in which the funds are either applied to the purchase of an existing business or the opening of a new location for an existing franchise. Based on the type of business you’re planning on buying — as well as your individual credit history — the amount of financing you’ll receive (and the terms under which you’ll be required to repay the loan) can vary substantially. 

How Do You Finance a Business Acquisition?

There are several different ways to finance a business acquisition. However, depending on the amount of funding you require, one option may be better for you than another. To that end, here’s a quick look at a few popular options and when each one may make the most sense for you.

Short-Term Business Loans

Short-term business loans are extremely common among business owners. This is because numerous lenders offer quick and easy access to amounts ranging from $2,500 to $250,000. Generally, these loans must be paid back within three years, but some lenders require repayment within as little as three months. When it comes to acquisitions, though, these loans often don’t offer enough funding to purchase a business unless that company is at a relatively early stage in its growth or has earnings that are rather modest.

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Long-Term Business Loans

For business owners who need access to a large sum of funds — but who aren’t necessarily in a rush to repay it — long-term loans offer an ideal solution. Compared to their short-term counterparts, long-term loans are more commonly used for business acquisition purposes because they offer limits up to $500,000 and the freedom to repay the borrowed sum over the course of a decade. Although long-term loans generally offer enough funding to purchase many small businesses, these loans can also come with high-interest rates, which can dissuade many potential borrowers from accessing this funding.  

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SBA 7(a) Loans

The Small Business Administration (SBA) offers a variety of loans for businesses of all sizes, but the organization doesn’t issue these loans itself. Rather, the SBA connects business owners with its network of approved lenders. Among the loans offered by these approved institutions, the most popular type is known as SBA 7(a). SBA 7(a) loans make it easier for small businesses to get approved for loans by reducing the risk for lenders. Moreover, SBA business acquisition loans can be issued in amounts up to $5 million, which is substantial enough to purchase many small businesses. The process of applying for SBA 7(a) loans, however, is more involved than short- and long-term loans and the requirements are more strict, meaning that fewer business owners will win approval.

Learn More About SBA Loans

Best Unsecured Loans For Business Purchase

If you’re looking for unsecured business acquisition loans to help your business grow, here’s a look at several popular lenders as well as their respective strengths and weaknesses.

FundingCircle

Funding Circle provides low-rate loans via a fast and simple process that doesn’t include application fees or prepayment penalties.

Pros

• FundingCircle’s online application process is fast and easy.
• The company has a high level of customer satisfaction.
• A loan from FundingCircle can help entrepreneurs build business credit.

Cons

• Loans from FundingCircle require personal guarantees.
• Interest rates on FundingCircle loans are more expensive than those of many banks.

» MORE: Funding Circle Business Loans Review

QuarterSpot

QuarterSpot is an online lender that offers fully amortizing short-term loans that allow borrowers to repay their loans early without facing any penalties.

Pros

• Borrowers who prepay their loans may receive a significant discount.
• A credit score isn’t required to qualify for a loan from QuarterSpot.
• QuarterSpot offers more transparent terms than many other lenders.

Cons

• Loans from QuarterSpot are subject to a moderately high APR.
• QuarterSpot charges more fees than many other lenders.
• The origination fee with QuarterSpot loans is much higher than many competitors.

Upstart

Upstart uses artificial intelligence and machine learning to grant speedy personal loans to business owners who may not have a long history of credit usage.

Pros

• Upstart offers APRs far lower than many other lenders.
• Loans from Upstart are processed in as quickly as one day.
• Unlike many other lenders, UpStart can approve your loan without hurting your credit score.

Cons

• Upstart may charge an origination fee as high as 8%.
• Loan terms are only offered on a 3-year or 5-year basis.

SmartBiz

SmartBiz is an approved SBA lender that countless entrepreneurs and business owners have trusted for funding.

Pros

• SmartBiz offers large loans with low APRs and long repayment terms.
• Applying for an SBA loan through SmartBiz is faster than going through the SBA directly.

Cons

• Qualifying for a loan with SmartBiz is more challenging compared to other lenders. 
• SmartBiz is not a great option for new business owners or applicants with bad credit. 
• The SBA 7(a) application process takes more time than short- or long-term loans. 

» MORE: SmartBiz SBA Loan Review

Prosper

Proper is a pioneer in the peer-to-peer lending industry, bringing individual borrowers and lenders together without requiring a middleman or many of the high fees common with traditional banks.

Pros

• Prosper allows borrowers to avoid fees charged by big banks.
• This lender doesn’t require a “hard pull” of an applicant’s credit report.

Cons

• If a borrower has bad credit, closing fees could be higher.
• Borrowers can’t customize the length of their loans. 
• Prosper charges an origination fee of up to 5%.

What to Consider Before Applying for a Business Acquisition Loan

Prior to applying for funding to acquire a competing company, it’s important to be familiar with common business acquisition loan requirements. Here’s a quick look at a few factors borrowers should consider before submitting a loan application.

Personal Credit Score

Your individual creditworthiness is a make-or-break factor in the eyes of many lenders. If your score doesn’t meet the minimum requirement for some institutions, filling out an application may likely be a waste of time. 

Outstanding Debts

Before approving an aspiring borrower’s application, many lenders also look at how much money the applicant owes to others. If you have a substantial amount of outstanding debt, that could certainly raise some red flags during a lender’s assessment of your application.

Extra Fees and Costs on Loan

Different lenders have different costs when it comes to loans. Some, for instance, charge fees for prepayments and origination, while others ask for a business acquisition loan down payments. Be sure to find out what lenders’ extra fees and costs are prior to taking out any loan. 

Payment and Loan Terms

It perhaps goes without saying that each lender also has its own set of terms regarding repayment. Some lenders charge more interest than others, while some institutions expect weekly or even daily payments rather than monthly ones. Familiarize yourself with these terms before signing on any dotted lines.

Conclusion

Hopefully, you now have a better understanding of business acquisition loans and how to get one. Compare your options, read the fine print, and choose the lender that’s best for you.

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