Community Development Lending, Explained: Business Acquisition Loans

In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.

In this fourth installment, we take a look at business acquisition loans, a vital tool in the realm of community development allowing developers to broaden their reach and create lasting impact.

What is a Business Acquisition Loan?

A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives. 

Two noteworthy business acquisition loans within the realm of community development, and which we offer at Capital Impact Partners, are cooperative loans, and working capital line of credit loans. One of the most significant steps a business can take is acquiring another business or securing essential working capital. These pivotal moments can be catalysts for growth, job creation, and lasting community impact. 

Unlocking Opportunities Through Cooperative Business Acquisitions: Cooperative Business Loans

Cooperatives have long been champions of community-driven economic development. Whether it is workers seeking to purchase a business from their employer, or a group of farmers joining forces to better serve their local markets, business acquisitions can be a game-changer. 

Business acquisition loans play a vital role in facilitating cooperative ventures, providing the necessary capital to purchase an existing business, and allowing cooperatives to:

• Broaden impact: acquiring an established business can expedite a cooperative’s growth and its ability to serve the community.
• Leverage expertise: gain access to experienced staff, established customer bases, and valuable industry knowledge.
• Ensure stability: preserve jobs, retain local ownership, and maintain the legacy of the business being acquired.

Capital Impact Partners has closed a business acquisition loan to Ward Lumber Worker Cooperative, Inc. (WLWC) to support the acquisition of 100 percent of the capital stock of Ward Lumber Co. (Ward), representing the conversion to employee ownership of the company and all of its assets. The transaction marked the first employee ownership transition, or worker co-op conversion, and the largest of its kind in the North Country region of New York State.

This business acquisition that led to Ward’s conversion to the employee ownership model helps to continue to support the region’s farm and construction industries, provide for above-average employee retention and wages, sustain the future of the enterprise, and build wealth in the community through ownership.

The Lifeline for Day-to-Day Operations: Working Capital Line of Credit Loans

In the ever-evolving world of business, maintaining a healthy cash flow is paramount. Working capital lines of credit are the financial lifelines that enable businesses to navigate the ebb and flow of daily operations effectively. These small-business loans are a type of short-term financing that is used to cover a business’s operating expenses, such as rent, payroll or inventory. 

Working Capital Line of Credit loans offer several advantages:

• Flexibility: borrow what you need when you need it, providing the agility required to seize opportunities or address unforeseen challenges. 
• Stabilizing cash flow: ensure that your business can cover operational expenses, pay suppliers, and meet payroll without interruptions.
• Fueling growth: invest in inventory, equipment, or marketing initiatives that drive business expansion and community impact. 

In 2020, Capital Impact Partners closed on a Working Capital Line of Credit loan to The Achievable Foundation (Achievable), an organization focused on health and wellness, and supportive services for people with disabilities based out of Los Angeles, California. A year prior, a few setbacks had negatively impacted the business including the loss of providers, amongst other difficulties. This line of credit allowed Achievable to replenish their cash and weather the operational challenges that emerged that year. 

Working Capital Line of Credit loans represent a necessary lifeline for organizations such as Achievable, that more often than not find it challenging to receive financing from traditional lending institutions, particularly in rough times. This loan has helped Achievable stay operational, and carry out their mission of serving their communities. 

Check out our mission-driven lending page for more information about our products to find out which might work best for you.