Buying a good and reputable company is often a good business decision. But if you want to buy a company, you need capital for that and in some cases a lot of it. But what sources of money can you tap to finance a company purchase? There are a variety of possibilities: eg through equity capital or loan offers from banks. Below we want to give you an overview.
Financing through equity
If you have decided and want to buy a company, it is essential that you at least a part of the financing of equity capital. Basically, you should assume a magnitude in the range of 15 to 20%. The capital can come from you or from financing partners. Equity is therefore important, among other things, to tap into other sources of funding and external capital providers, such as bank loans.
Open participation vs. silent participation
If you have an external investor and thus make money available to the company without having to provide collateral for it, this is called equity capital. The equity enhances your credit rating and gives you better chances on bank loans.
In the case of open participation, the investor acquires shares in the company and thus also shares in the profits and assets of the company. So he is a shareholder and also acts as a partner on the outside. In contrast, there is also the possibility of silent participation. The investor pays money without acquiring shares in the company. In return, he will participate in the profits of the company.
Funding programs for funding
If you are missing a private investor, you have the opportunity to benefit from a variety of grants. There are numerous subsidy programs of the EU as well as of federal, state and local governments. The benefit of these grants is that it is in principle free money. There is no need to repay or interest, nor to sell shares in the company.
Funding through mezzanine capital
Mezzanine capital is a hybrid of debt and equity. Similar to a stake, it increases your credit rating to get more leverage, if needed. Among the forms of mezzanine capital is the silent participation mentioned above.
In this particular form of financing, however, there are some legal nuances, such as in the case of bankruptcy, to consider. Such as the subordinated loan. Regarding this form of financing, there are numerous public funding programs.
However, these funds must be requested before the purchase of the company. Subsequent funding or funding is not possible. Another limitation is the amount of funding. This may not exceed three quarters of the purchase price.
The financing through borrowed capital
Debt financing is mainly financed by banks in the form of loans, which must be made available and paid back interest-bearing. The first port of call for bridging funding gaps is often the house bank with which a loan contract is to be concluded. This usually requires a relatively long lead time, as the bank only lends its loan on the basis of a business plan with exact numbers and projections. Likewise, the bank’s examination of the loan application takes some time.
Of course, there are also a large number of offers from online banks or normal commercial banks on the Internet, some of them also from abroad. Here you can apply for your loan online.
Away from the banks there is also the possibility to take out a private loan. These can be obtained, for example, from your relatives or from foreign investors. There are already a lot of portals that you can find on the internet. These are often more flexible in terms of design than a bank loan. Nonetheless, a solid contractual basis should be respected, with everything important being regulated.
Last but not least, there is also the possibility of using state subsidies for loans. The contact persons here are the development banks of the federal states and special EU development funds. Public loans often offer more favorable terms or modalities for repayment, such as grace periods.
For loans, collateral must always be provided in the event of a loan default. On the one hand, this is the company you buy, and on the other hand, there are other assets that you have. These can be, for example, real estate or life insurance. In the event that you can not bring any collateral, guarantees help further. These guarantors can be private individuals or again the state in the form of state guarantees.