Buying A Business - Legal Elements and Considerations

Before lenders will grant a small business loan, they want to be sure that the loan will be repaid. The following are the five basic items that all lenders look at before they will approve your business loan:

Credit history One of the primary factors lenders look at is the condition of your personal and business credit. Your personal credit score is associated with your Social Security number, but business credit reports are tied to your tax ID number. Your investment Business loan applicants should have a reasonable amount of their own money invested in their business. A lack of adequate working capital increases the risk that your business will fail and makes lenders much less likely to approve your loan.

Most lenders require collateral to secure the loan. Collateral can be business assets and personal assets. Experience and character Lenders will expect you to have experience in the type of business that you plan to run. Business plan A business plan is particularly important for new businesses, as they lack a track record for lenders to review. A professional business plan will be at least 20 pages long, plus financial projections. The business plan will include:

Market data showing demand for your type of business

Loan request This can be included with the business plan and should detail the amount of money requested, how the loan funds will be used, the type of loan, the amount of working capital you have, the collateral that will secure the loan, the personal guarantees of the loan, and how the loan will be repaid.

Personal financial statements You will need to provide personal financial statements for anyone who owns 20 percent or more of the business.

What is the loan process?

The loan officer will determine if any additional documentation is required. If your loan is approved, you will receive closing documents and they may be handled by a title company. BUYING A BUSINESS Legal Aspects and Considerations

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PURCHASING AN ON-GOING BUSINESS is an excellent opportunity for an entrepreneur seeking the financial and personal rewards of owning and operating a business.

Typically, a successful business develops these attributes over a period of time. The following highlights some of the legal aspects and potential pitfalls of various stages of the business purchase process.

Primary and Ancillary Transaction DocumentsA business sale/purchase may be structured in numerous ways. Popular structures include the stock sale, asset sale and merger.

Time and EffortConsummating a business sale often takes longer than the principals initially anticipate.

In conclusion, purchasing a business implicates important commercial and legal issues.