How to Secure Financing for Buying a Business

Acquiring a running business is a brilliant way to step into entrepreneurship. It gives you a ready-to-use setup, pre-existing customers, proven revenue streams, and functioning processes. Among the most usual issues for upstart entrepreneurs is finding money to buy a business. In this blog, we will discuss the different funding possibilities available, that is, in the Indian scenario, and how you can set yourself up to get funded effectively.

Why Financing is Important When Buying a Business

Buying a business is usually a costly purchase. Whether you are buying a small retail store, a service firm, or a franchise, you will require considerable capital. The price is not only the acquisition price but also working capital, acquisition expenses, lawyer fees, and in some cases, renovation or marketing after acquisition.

That’s when funding to acquire a business comes in. Rather than utilizing own funds, the majority of the buyers would want to make the acquisition using third-party sources of funds like bank finance, NBFCs (Non-Banking Financial Companies), private capital, and government schemes.

1. Evaluate the Business

It’s important, before approaching finance, that you get to know the business you are acquiring. You have to do the due diligence on the business to establish:

• Financial position (3-5 years of historical financials)
• Customer contracts and base
• Market position
• Strength of employees
• Legal obligations

2. Consider Your Financial Position

Lenders will also examine:

• Your credit rating
• Business experience
• Personal assets and liabilities
• Outstanding debts
• A CIBIL rating of 700+ is good in India and enhances your prospects of getting approved. 
• Industry experience, too, is another big plus in applying for Indian small business loans.

3. Explore Financing Options in India

Banks operating in Kerala, including nationalized banks, private banks, and the Kerala Gramin Bank, provide business loans at nominal interest rates. You can avail:

• Term Loans: Repayment in fixed installments for an amount.
• Working Capital Loans: For the funding of daily operations post-purchase.

Unless you are eligible for income-and credit-worthy unsecured loans, banks usually accept security.

a) Small business loans (Kerala government-backed programs)

Kerala also implements the MSME (Micro, Small & Medium Enterprises) programs run by the Indian government:

• Keralans who want to launch a small business or grow their current one are the target audience for MUDRA Loans (Pradhan Mantri MUDRA Yojana). Loans up to ₹10 lakh, classified as Shishu(Loans up to ₹50,000), Kishor(Loans from ₹50,001 to ₹5 lakh), and Tarun(Loans from ₹5,00,001 to ₹10 lakh).
• CGTMSE Scheme – Credit Guarantee Fund Trust for Micro and Small Enterprises offers collateral-free loans to eligible businesses in Kerala.
• This national program seeks to promote entrepreneurship among SC/ST groups and women in Kerala.Often with less collateral needs, these programs apply to small business loans in Kerala. 
• The Kerala Financial Corporation (KFC) also provides particular financial aid programs for companies inside the state.

These schemes are best applicable to small business loans in kerala with lower collateral requirements.

b) NBFCs and Digital Lenders

NBFCs like Bajaj Finserv, Lendingkart, and Capital Float offer instant disbursal and adjustable payment facilities. Their documentation procedure would typically be easier, though interest would be marginally more than the bank.

c) Private Equity and Angel Investors

For larger or more potential business purchases, seeking out angel investors or private equity groups might be considered. For investment, they could ask for equity or a portion of profits.

d) Seller Financing

Sometimes, the seller agrees to finance part of the purchase price. The buyer pays an upfront amount and pays the rest over time in installments. This option can work if the seller trusts the buyer and wants a smoother transition.

4. Prepare a Strong Business Plan

No matter the funding source, you’ll need a well-prepared business plan. This should include:

• Executive summary
• Business model
• Market opportunity
• SWOT analysis
• Financial projections (3–5 years)
• Repayment plan

A solid plan shows lenders and investors that you’re serious, knowledgeable, and capable of running the business successfully.

5. Gather the Right Documentation

Most lenders will ask for:

• ID and address proof
• PAN card
• Bank statements (past 6–12 months)
• ITR (Income Tax Returns)
• Proof of business valuation
• Business purchase agreement or Letter of Intent (LOI)

Being prepared with these documents will speed up the loan approval process.

6. Review and Compare Financing Terms Carefully

Before accepting any financing offer, review:

• Interest rates
• Tenure
• Repayment flexibility
• Prepayment charges
• Processing charges

Compare quotes from different lenders to find the best deal. Remember, financing should propel business growth, not weigh it down.

Conclusion

Financing for buying a business involves planning, good credit, and a vision of your objectives. For entrepreneurs, there are many options, ranging from conventional bank loans to new small business loans supported by government schemes.

By doing things the right way and having things in perspective, you can secure the funding you need to become a successful entrepreneur.

If you need to purchase a business or need to finance it, we specialize in providing business loans and connecting buyers and sellers who are ready to sell. With a large network of sellers across numerous different industries, we help you find the right opportunity as well as arrange the financing. Contact us today to explore possible businesses and financing arrangements to start your entrepreneurial venture.