It is almost always necessary to secure external financing in order to proceed with a business merger. Even if a company actually has the funds available to proceed, it’s better that those cash reserves are not depleted, because they will certainly be needed down the road as the merger develops. Here are some popular sources for funding which may be available to you when you’re considering a business merger.
Cash on Hand
If you happen to have a company which is in great financial shape, you may be able to proceed with a business merger simply with the cash you have available. If you don’t need outside capital, you may be in better shape to pull off the merger because you won’t take on any additional debt. However, keep in mind that using cash reserves will deplete your cash on hand significantly, and may leave you vulnerable to business downturns.
Cash is not always necessary to pull off a business merger, and some companies actually do a merger by using business equity as currency. This would work by some kind of arrangement where shareholders in the two companies acquired a percentage interest in the other company.
By providing the seller a percentage stake in your company, you would only need to fund the remaining percentage through some kind of external cash source. This can be very helpful in keeping costs down and making the merger more doable.
One of the easiest ways to fund a business merger is by obtaining seller agreement to not accept all the cash due them upfront. As an example, you might pay them 75% at closing time, and pay the remaining 25% two years down the road.
Private Equity Firms
Probably one of the most popular methods for securing funding for a business merger is through private equity firms. These are investment companies which are willing to fund promising business mergers, provided that the two companies involved have appealing cash flow, and the likelihood of future business success.
Banks and SBA loans
Of course, there are always traditional lenders which may provide funding you need for your business merger. However, there will always be stringent conditions associated with these loans, and approval rates have been very slim for more than two decades. If you can secure a loan from one of these two sources, you can count on favorable interest rates and repayment terms.
Need Financing For a Merger?
If so, we may be able to provide the financial assistance you need to proceed. Contact us at 360 Commercial Capital, so we can discuss some options which you may qualify for.