Access to capital remains one of the biggest barriers for SME leaders looking to acquire an existing business. While the right acquisition can accelerate growth and expand market share, funding that move is often more complex than expected.
With estimates placing the financing gap for small and medium-sized enterprises (SMEs) in the Philippines at between PHP 67 billion and PHP 180 billion, it is clear that many business owners are left searching for alternative solutions.
This financing gap has created significant hurdles for those looking to acquire an existing business, especially when traditional banks often impose rigid requirements and lengthy approval processes. But there are options out there.
In this blog, we'll guide you through the various small business acquisition loan options available, from government-backed SBA loans to more flexible and quick-access solutions, such as merchant cash advances and microfinance loans.
What is a Small Business Acquisition Loan?
A small business acquisition loan is funding that helps you purchase an existing business. Instead of starting from scratch, this type of loan allows you to buy a business that's already up and running, with established customers, steady cash flow, equipment, and even employees in place.
Small Business Acquisition loan can cover things like:
- The purchase price of the business
- Equipment and inventory
- Working capital to help you run the business after the deal
- Franchise fees (if you're buying into a franchise)
Lenders like banks, government institutions, and private financing firms usually want to see that the business you're buying is profitable or has strong potential. They'll also look at your credit history, business experience, and how much money you're willing to invest personally.
When considering this type of loan, you'll often encounter two main options: secured and unsecured loans.
A secured loan involves offering collateral, such as property or equipment, to back the loan, while an unsecured loan does not require collateral but may come with higher interest rates. Both options can help you fund your business acquisition, but the choice between them depends on factors like the assets you have available and your financial situation.
What's the Difference Between Secured and Unsecured Loans?
When it comes to financing a business acquisition, choosing between a secured and unsecured loan is one of the most important decisions you'll make. Both types of loans can help you fund your business purchase, but they come with different terms, risks, and requirements. Let's break them down.
Secured Loans
A secured loan requires you to offer collateral, such as property, equipment, or even the business itself, to secure the loan. If you can't repay the loan, the lender can seize the collateral to recover the money.
Pros
- Lower interest rates due to reduced risk for the lender
- Larger borrowing amounts since collateral is involved
- Easier approval if you have strong assets, even with less-than-perfect credit
Cons
If you fail to repay the loan, you risk losing the asset you pledged as collateral. This option works best if you're comfortable with the potential outcome.
Unsecured Loans
An unsecured loan, on the other hand, doesn't require any collateral. Lenders rely more on your creditworthiness, business experience, and the financial stability of the business you're acquiring to determine eligibility.
Pros
- No risk to your assets
- Faster approval process since there's less paperwork
- Flexibility with fewer restrictions on how you use the funds
Cons
- Higher interest rates due to the increased risk for lenders
- Lower borrowing limits
- Stricter eligibility requirements (such as a strong credit score and a solid business plan)
Which One is Right for You?
The choice between secured and unsecured loans depends on your comfort. A secured loan might be your best bet if you have valuable assets and want better terms. But if you'd rather not risk your assets, an unsecured loan offers a quicker path to funding, though at a higher cost.
As you weigh your options, it's essential to consider your financial situation and what level of risk you're willing to take on in your business acquisition journey.
While understanding the loan structure is important, selecting the right financing option also depends on what’s available and practical within the Philippine lending market.
Top 5 Ways to Finance a Business Acquisition
For many entrepreneurs, acquiring an existing business is a strategic way to enter a market with fewer initial risks. However, access to funding remains one of the most significant barriers. Traditional financing often comes with strict requirements, long approval times, or limited flexibility, making it difficult to secure the capital needed.
If you're considering a business acquisition in the Philippines, it's essential to understand the funding options available. The following five options offer different pathways to help you finance the purchase, each with its advantages and considerations.
- SBA Loans
- Term Loans
- Microfinance Loans
- Merchant Cash Advance
- Crowdfunding and Peer-to-Peer Lending
Let’s discuss these in detail.
1. SBA Loans (Small Business Administration Loans)
In the Philippines, SBA loans are available through government-backed institutions, such as the Small Business Corporation (SBC), a subsidiary of the Department of Trade and Industry (DTI). These loans are designed to help micro, small, and medium-sized enterprises (MSMEs) access financing with easier terms than traditional bank loans.
Loan Details under SBC's Regular Retail Lending Program.
- Loan Amount: Typically starts at PHP 500,000 and can go up to PHP 10 million, depending on the program and borrower qualifications.
- Interest Rates: They vary across programs, but are generally competitive. For example, under the P3 (Pondo sa Pagbabago at Pag-asenso) Program, interest is capped at 2.5% per month (effective, all-in rate), while other regular fixed asset or working capital loans may carry annual rates ranging from 7% to 10%.
- Repayment Terms: Typically range from 1 to 5 years, depending on the loan purpose (e.g., working capital or fixed asset financing).
Pros
- Easier access for MSMEs compared to traditional bank loans
- Lower interest rates due to government backing
- Longer repayment terms, which ease the financial burden
Cons
- Stringent eligibility criteria, such as proving your business's viability and creditworthiness
- Lengthy approval process, sometimes requiring up to 3–6 months
- Detailed paperwork, including business plans and feasibility studies
Ideal For: Entrepreneurs looking to buy into an established small business with steady cash flow and profitability. SBA loans are great if you have a solid business plan and meet the eligibility criteria.
2. Term Loans
A term loan is a lump-sum loan offered by banks or lending institutions, which you must repay in fixed installments over a set period. In the Philippines, term loans are widely offered by banks like BDO, Metrobank, and RCBC.
- Loan Amount: Typically ranges from PHP 1 million to PHP 50 million or more, depending on the bank and the type of collateral.
- Interest Rate: Secured term loan interest rates usually range from 8% to 12% per annum. Unsecured term loans can have higher interest rates, ranging from 18% to 30% annually, depending on the lender.
- Repayment Terms: Typically 1 to 3 years, but can be extended up to 3–5 or more years for larger loans, depending on the bank.
Pros
- Fixed interest rates provide certainty in budgeting and cash flow management
- Can access a large sum of money for a significant business acquisition
- Longer repayment terms make it easier to handle large loans
Cons
- Requires substantial collateral, such as real estate or business assets
- The approval process can be lengthy and involves significant documentation (business plans, collateral evaluation, etc)
- Higher interest rates compared to government-backed loans
Ideal For: Larger acquisitions where you need a substantial amount of funding. Term loans work best if you're purchasing a well-established business with valuable assets or a strong track record of profitability.
3. Microfinance Loans
In the Philippines, microfinance loans are aimed at small-scale entrepreneurs, particularly those in rural areas or low-income communities. These loans are offered by microfinance institutions like Card SME Bank, Hapinoy, and Negros Women for Tomorrow Foundation (NWTF).
- Loan Amount: Typically ranges from PHP 5,000 to PHP 300,000
- Interest Rates: Can be around 2% monthly, depending on the lender.
- Repayment Terms: Short-term, from 3 months to 2 years
Pros
- Fewer requirements for approval (no collateral or minimal paperwork)
- Fast approval and disbursement of funds
- More flexible repayment schedules, often daily or weekly
Cons
- Higher interest rates, especially for larger loan amounts
- Shorter repayment periods can create pressure for quick returns
Ideal For: Entrepreneurs who are acquiring a small business with modest financing needs, such as a local retail shop or service business. Microfinance loans are ideal for individuals in underserved markets or those who are first-time borrowers with limited access to traditional bank financing.
4. Merchant Cash Advance (MCA)
A Merchant Cash Advance is a type of business funding where you receive a lump sum upfront, and repay it through a fixed percentage of your daily or weekly credit card sales. It’s not a traditional loan—it's based on your sales volume and works best for businesses that get paid mostly through cards.
- Loan Amount: Typically ranges from PHP 50,000 to PHP 5 million, depending on your sales history
- Fees (Factor Rate): Instead of interest, MCAs use a factor rate, typically ranging from 1.2 to 1.5, which can translate to annualized costs of 18% to 35% or more.
- Repayment Terms: Deducted daily or weekly from your card sales, usually over 6 to 12 months
Pros
- Fast approval (often within 24–48 hours)
- No collateral needed
- Repayments adjust based on your sales volume
Cons
- Expensive compared to standard loans
- Daily deductions can strain cash flow
- Not ideal for seasonal businesses or those with inconsistent revenue
Ideal For: Businesses with consistent credit card transactions or high daily sales, such as retail stores, restaurants, and cafes. If you're acquiring a business in a high-traffic area or one with steady sales, an MCA can provide quick and flexible funding. However, due to their high cost, MCAs are best used as a short-term funding solution, rather than for long-term investments.
5. Crowdfunding and Peer-to-Peer Lending
While still a relatively new concept in the Philippines, crowdfunding and peer-to-peer lending are gaining popularity, especially among startups or small businesses with a unique proposition or social impact. Platforms like SeedIn, Go Get Funding, and Kiva Philippines provide entrepreneurs with the opportunity to raise funds from a large group of individual investors.
- Interest Rates: Depending on the platform, they can range from 0% (for donation-based crowdfunding) to higher rates (for debt-based crowdfunding)
- Repayment Terms: Depends on the campaign and investor agreements
Pros
- Access to funding without traditional credit checks or collateral
- Opportunity to tap into a community of supporters or investors
- It can also serve as a marketing tool, as people invest in your vision
Cons
- Requires significant effort to build and manage a successful campaign
- Uncertainty in funding, as it depends on the interest of others
- Limited to certain types of businesses, typically those with a strong social or community impact
Ideal For: Entrepreneurs with a compelling story or socially impactful business, such as eco-friendly products or community-driven businesses. Crowdfunding can be beneficial if you need smaller amounts of capital and have a loyal following or an innovative business concept.
Choosing the right loan for your business acquisition in the Philippines depends on several factors, including the size of your business, your ability to provide collateral, and the urgency of the funds needed.
Each of these financing options comes with trade-offs—some offer speed but come at a higher cost, while others provide better terms but require more paperwork and patience. In a market where timing and trust matter, n90 prioritizes both, offering tailored solutions that align with your needs and ensuring a seamless partnership throughout your business acquisition journey.
Why Choose n90 for Business Acquisition Loans?
If you're acquiring a small business, you need more than just funds—you need a financing partner who understands growth, timing, and trust. That's where n90 comes in. At n90, we take a relationship-based approach to lending. We look beyond just numbers and focus on helping businesses like yours thrive.
Here's why SMEs choose us.
- Flexible Loan Options: Whether you need a bridge loan, a small business loan, or invoice financing, we offer tailored solutions to match your business goals.
- Credit Limit Up to PHP 25 Million: Depending on your annual revenue, you can access financing from PHP 1.5M up to PHP 25 M.
- Monthly Interest Rates Starting Below 1%: Our rates are competitive and adjusted to fit different revenue tiers.
- No Hidden Fees: We believe in complete transparency. You'll know all charges upfront before signing anything. No surprises—just clarity.
- Financial Coaching & Support: If you're a first-time borrower, we'll guide you through every step of the process. Our experienced team is here to support you every step of the way.
- Built on Trust: We work with clients we believe in, building long-term relationships, not just closing deals.
If you're acquiring a business and want a lender that prioritizes long-term partnerships, not just transactions, n90 is a smart choice. Apply now to get started.
Final Note!
Securing the right financing for a small business acquisition in the Philippines requires careful consideration of your options—whether it’s the government-backed benefits of SBA loans, the flexibility of term loans, or the speed of alternative options like merchant cash advances.
Each option comes with its own set of advantages and challenges, so it's essential to align the loan choice with your specific business goals, the nature of the business you're acquiring, and your financial situation. As you explore these options, remember that having the right lending partner is crucial.
At n90, we offer tailored, relationship-based financing with transparent terms, competitive rates, and the support you need every step of the way. Ready to take the next step in acquiring your business? Get funded today with n90 and take your business to new heights.
FAQs
1. Can I get a business acquisition loan with no prior business experience?
Yes, but it can be more challenging. Most lenders prefer borrowers who have some experience in managing or operating a business, especially in the same industry as the one being acquired. If you're a first-time buyer, strengthening your application with a solid business plan, a mentor, or co-investors can improve your chances.
2. What happens if the loan application is denied?
If your loan is denied, the lender should provide a reason, whether it’s low credit, insufficient collateral, or weak business financials. You can then work on improving those areas or explore alternative funding options like seller financing, angel investors, or partnering with someone who has stronger financials.
3. Do I need to provide a down payment for a business acquisition loan?
Yes, most lenders require a down payment, typically between 10% to 30% of the purchase price. The exact amount depends on the loan type, lender requirements, and risk profile. A higher down payment can improve your approval odds and may lead to better loan terms.
