This page from Aspenspring Business Loans in Durango, Colorado covers business term loans: how a term loan works, financing the purchase of an existing business, getting a larger loan for an acquisition, cash flow versus asset-backed term loans, remodel loans, and checking a payment with invented worked figures before a partner sets the actual terms.
At a glance
- Employer establishments, La Plata County, CO
2,447 (County Business Patterns 2023)
- Employers with 5 to 19 employees
757 (our arithmetic, County Business Patterns 2023)
- Self-employed share of employed residents
18.7% (American Community Survey 2020-2024)
Business Acquisition Financing Around Durango, CO, From Price to Payment
Buying an existing business is a textbook term loan purchase. The buyer pays the seller once, and the loan is paid back from the business's own cash flow over several years. La Plata County, CO had 757 employer establishments with 5 to 19 employees in 2023 (our arithmetic from County Business Patterns 2023), the size range where an owner's retirement can put a working firm on the market.
Illustration only, invented figures: a buyer agrees to pay $420,000 for an established accounting practice and puts 15% down, $63,000. The remaining $357,000 over 120 months at an invented 10.5% comes to about $4,817 a month (our arithmetic). If the practice earns $128,000 a year before the owner's pay and the loan, those earnings cover the annual payments about 2.21 times (our arithmetic), and a partner weighs whether that leaves enough for the buyer to live on.
The Colorado business acquisition guide walks through the purchase step by step.
How a Business Term Loan Works From Draw to Final Payment
The funder pays the full amount at closing. From the first month, each payment covers that month's interest and a slice of the principal; early payments carry more interest than principal and later ones the reverse, which is why paying off a term loan early saves less in its final years. The rate can be fixed for the whole term or adjust with an index.
- The amount and what it pays for, stated in the agreement.
- The number of months and the payment each month.
- Whether the rate is fixed or variable, and the index if variable.
- Fees at closing and any charge for paying off early.
- The collateral and any personal guarantee.
Getting a Larger Loan to Buy an Existing Business
A larger acquisition loan rests on three things a partner can verify: the business's own earnings, the buyer's experience and stake, and what the deal pledges. Seller financing, where the seller takes part of the price as a note paid over time, reduces the loan the buyer needs and shows the seller expects the business to keep earning. A down payment from the buyer's own funds does the same.
Before asking for a large amount, collect three years of the business's tax returns, a current profit and loss statement, a list of equipment, the lease, and the signed letter of intent. A partner reads those to judge whether the price matches what the business earns.
Cash Flow Term Loans Versus Asset-Backed Term Loans
A cash flow term loan is sized to what the business earns, with little or no specific collateral; the funder relies on future earnings and a personal guarantee. An asset-backed term loan is sized to what the business owns, such as equipment, vehicles or receivables, and those assets secure it. Professional firms with few hard assets, such as a design studio or a law office, lean on cash flow; a contractor with a yard full of machines can pledge them.
Neither is better in general. A cash flow loan leaves the equipment available to pledge elsewhere; an asset-backed loan can open a larger amount for a business whose earnings are uneven. Ask each partner which kind it is offering.
Paying for a Remodel With a Term Loan
A remodel has a contractor's bid, a start date and an end date, which makes it a term loan cost. Illustration only, invented figures: a $75,000 dining room remodel financed over 60 months at an invented 11.5% carries a payment of about $1,649 a month (our arithmetic). Funders paying for build-outs can ask for the bid and the permit, and some hold back part of the money until the work passes inspection.
Work inside the City of Durango needs the city's permits and licenses, which the Durango, CO license guide covers. A restaurant planning a remodel can also read the restaurant page.
Checking a Term Loan Payment Before Signing
Any offer can be checked with the standard payment formula: payment = amount x r / (1 - (1 + r)^-n), where r is the annual rate divided by 12 and n is the number of months. Using the remodel example above, $75,000 at 11.5% over 60 months gives $1,649 a month and $98,967 paid in total (our arithmetic).
If the offer's total paid is higher than the formula gives, the difference is fees. Set that total against the gap the money fills, and against a line of credit if the cost is spread over many months rather than paid at once.
Term loans carry the bigger projects in three articles: a lodge replacing furniture, fixtures and equipment, a restaurant remodel or second room and the factors that move a term loan rate.
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