How Much Should You Put Down When You Buy a Business?

Buying a business is exciting but the size of the transaction is enough to make anyone feel nervous.

Generally, the more you can put down earlier, the better. The minimum down payment is determined by the seller but it typically comes in around 20% of the purchase price. However, in some cases it may be prudent for you as a buyer to put as much as 30% down.

Putting a larger payment down upfront also proves to investors, who are financing the remainder of the purchase price, that you’re committed to fulfilling the business payments. In some cases, however, a lower down payment isn’t necessarily a bad thing if it gives you more leeway to ensure you’re meeting your financial obligations and keep the business operating.

Depending on the type of business you are acquiring, there are different Canadian loan opportunities suited to help you determine how much down payment you need to put. They are the following.

Small Business Loan

This is designed to help entrepreneur’s fund their business needs. Your bank will usually have a separate department and set of accounts is dedicated to this. For example, TD offers a Small Business Loan credit that provides security and fixed interest rates. In Canada, to get approved for this loan, you will need to provide details about your current income, tax return slips and insurance policies.

E-Commerce Financing

An eCommerce business loan is specifically offered to business owners who operate an online business. It typically comes from non-traditional financing sources and is often used to expand inventory, acquire other companies, or improve online exposure, all to help you boost your cash flow.

SaaS Financing

A SaaS company can be mistaken as an E-Commerce business but they are different entities, which is why there are two separate financing methods. SaaS financing is a ‘revenue- based solution’. This means, as your company grows, so does the funding.

Equipment Leasing

This type of financing is a contract-based solution often between the business owner and an equipment company, as opposed to a bank or other traditional lender. This exchange is fitted for business owners who prefer leasing the necessary equipment for a period of time rather than purchasing it outright.

Buying an existing business is lower risk compared to a starting one because there is already a customer base, equipment, and a financial history. And while there is a premium associated with these advantages, you also avoid additional startup costs such as registrations fee for the business name, getting a certified permit to start the business, insurance for the corporation, payroll systems, and health benefit packages. An existing business that has been operating for years will likely have all these things setup.

Are you new to the small business scene? Join our marketplace and explore our resources to draw on the expertise of hundreds of seasoned entrepreneurs.

Opinions expressed here by contributors are their own.

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