You’ve decided that it’s finally time to make your dream of owning your own business a reality. You know that an online business is the right choice for your needs, and you know just what niche you want to enter. The excitement is building. You’re ready to jump in and begin your search, but there is one thing you should do before you start making calls and conducting online hunts for an individual that wants to sell a web business that is just what you’re looking for. Before you go any further, you need to get pre-qualified to buy a business.
What Is Pre-Qualification?
If you’ve ever gotten a mortgage before, you may already be familiar with the concept of pre-qualification. Basically, pre-qualification is a commitment from a lender to give you a set amount of money that you can use to fund the purchase of your business. The lender will supply you with a pre-qualification letter or document that you can present to website brokers or to sellers when you express interest in a business.
Benefits of Pre-Qualification
If you are going to need to finance any portion of your purchase of an online business, it’s vital that you get pre-qualified before you take any further steps in the buying process. Doing so will give you a number of benefits, including:
- No Wasted Time - Banks are finally lending money again, but lending criteria has gotten much stricter since the financial crisis. Obtaining financing can be difficult, particularly when you’re purchasing an online business. By applying for pre-qualification, you’ll know up front whether or not you’ll even be able to obtain a loan. In the event that you can’t obtain pre-qualification, you’ll be able to develop a plan to improve your credit, come up with collateral, find a consignor or increase your income or savings rather than wasting time pursuing a purchase right now.
- More Focused Search - Your pre-qualification will let you know precisely how much you can spend on the purchase of an online business. As a result, you’ll be able to focus on the businesses that you can afford. Improved focus will make for a more streamlined search process and help you find the perfect business to buy much faster.
- Expanded Options - Some prospective online business owners are pleasantly surprised by their pre-qualifications and find out they will be able to afford a more expensive business than they anticipated. Once you know how much you will be able to borrow, you may be able to expand your search to more profitable businesses.
- Credibility - Having a pre-qualification letter from a lender will show sellers that you’re the real thing. By establishing credibility from the start, you’ll be in a better position to negotiate. When sellers take you seriously, they’ll be more cooperative and eager to work with you.
How to Get Pre-Qualified
To get pre-qualified, you’ll need to approach lenders and complete an application. Lenders may want to see proof of income, bank statements or tax returns, so it’s helpful to have those documents together. It’s also a good idea to check your credit score with all three of the reporting agencies. The bank will do the same, but you’ll want to know your numbers as a frame of reference.
Tips on Getting Pre-Qualified
To get the most out of getting pre-qualified, keep these tips in mind:
1. Apply with multiple lenders. Most pre-qualification letters are good for a specific period of time. In some cases, it takes a fair amount of time to locate and close on an online business, and there is always a chance that your pre-qualifications could expire and lenders could change their lending criteria during the time period. If you have more than one pre-qualification, you’ll have a number of lenders to go back to if things take longer than planned. In addition, you’ll be able to shop the financial institutions and find the one willing to give you the most money at the best rate.
2. Get pre-approved for extra money. If you think you know roughly how much you’ll need to buy an online business, consider adding your estimated cost of 90 days of working capital to the loan. This will be invaluable if the business suffers a slowdown at some point or if sales drop during the transition period.
3. Consult a broker. Internet business brokers can point you to lenders that are known specifically for financing the purchase of online businesses. This can save you time and reduce the risk of you paying application fees only to be turned down because the lender is not interested in financing online companies.
If you’re looking for assistance with pre-qualification or want to line up your next steps so that you can begin searching as soon as you have your qualification paperwork, website brokers can help. Contact us today to speak with one of our online business brokers who can help guide you through the buying process.