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- most affordable and easiest to acquire
- available through operating loans secured against accounts receivable and inventories
- also available through term loans, leasing and commercial mortgages to finance capital assets (real estate, machinery)
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- also known as subordinated debt
- may be appropriate for businesses that are highly leveraged or those that lack the business assets to finance through bank financing alone
- carry higher fees and rates and may require giving up some ownership interest
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- suited to companies that operate with limited tangible assets or those that have maximized their borrowing potential
- investors become partners in the business with decision-making rights
- future business’ profits repay the investor
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- seller supports the financing of the acquisition in the form of a loan or becomes an investor in the business
- ideal for business owner who does not need immediate access to funds and wants to retain some control over the transition of the business
- seller will continue to bear some of the risk of the business
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- buyer uses personal funds to finance the acquisition, either in whole or in part
- buyer may have to borrow – the resulting loans may be secured against personal assets
- the amount of the buyer’s equity will also be a factor in determining other financing options
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