Business Loan - To Purchase a Business

I am wanting to buy a business, and was wondering what my options were in regards to getting finance for it.

If any brokers could give me an idea that would be great. If not, thanks anyway! :)

My scenario is:

PPOR in Chelsea Heights valued at approx 290k-300k (my estimation)

Loan on PPOR is 230k, with National Australia Bank.

I would like access to about 40k. I don't have a particular business in mind, but I figure 40k is a good starting point.

Am currently not working, so don't think that I would be able to apply for a traditional line of credit with NAB, because of serviceability? Not sure.

Thanks for your time! :) :)
 
You should be able to get $40K fine, as long as the business you purchase provides enough income for servicing. NAB are pretty good with business lending and would probably be your best bet given that you already hacve a relationship with them and they already have some property security.

Regards
Alistair
 
Hello APerry,

Thanks for your reply.

I am having trouble in getting NAB to come out to do another valuation, as I only settled on the property 3 months ago.

It has been over a week since I asked my mortgage broker to order another valuation, but there has been no progress. He keeps telling me that it is with NAB, they're working on it, my banker has to speak to her boss, they will call me, I will get back to you...blah blah. :D Is it supposed to take this long?

It seems like my broker is dragging his feet. Or perhaps it is NAB. *sigh*

Thanks again! :)
 
If you can service the loan, NAB will lend you the $40K unsecured. You may find that this is cheapeer than increasing the LVR against your property. You should at least explore this option.

Regards
Alistair
 
I have no job. :p

So cannot prove serviceablity. Boo.

Appreciate the continued help, Alistair! :D

You want to be careful about using your own property as security for a business loan. If the business goes pear shaped and you cannot repay your loan, the bank can then sell your house to get their money back.

If you can, keep the two entirely separate, come up with a deposit and a good business case for repaying the loan.
 
I assume the business you buy will have cashflow, you can use that.

Oh okay, that sure sounds good. :)

What is the max that can be lent unsecured, using the cash flow from the business?

And what sort of cash flow would the business need to service a 40k loan? I assume they take into consideration my mortgage repayments also.

Sorry I am quite new at this (obviously). :p

May I PM or email you to apply for this loan? Or is it too small a loan for you to write?

Thanks again. Much appreciated! :D
 
You want to be careful about using your own property as security for a business loan. If the business goes pear shaped and you cannot repay your loan, the bank can then sell your house to get their money back.

Oh my. :eek:

If you can, keep the two entirely separate, come up with a deposit and a good business case for repaying the loan.

Thanks for the advice! :D

Cheers.
 
What is the max that can be lent unsecured, using the cash flow from the business?

The largest totally unsecured that I have done is $70K, you can lend more than this against a business though.

In response to your comment re the loan size, they are not great loans to write as there is not much money in them, but I'm happy to give you some assistance.

You want to be careful about using your own property as security for a business loan. If the business goes pear shaped and you cannot repay your loan, the bank can then sell your house to get their money back.

You won't have to secure the loan against property, but if you default whichever lender you use will go after an assets in your name to get there money back.

Regards
Alistair
 
Hello APerry,

Thanks for your reply.

I am having trouble in getting NAB to come out to do another valuation, as I only settled on the property 3 months ago.

It has been over a week since I asked my mortgage broker to order another valuation, but there has been no progress. He keeps telling me that it is with NAB, they're working on it, my banker has to speak to her boss, they will call me, I will get back to you...blah blah. :D Is it supposed to take this long?

It seems like my broker is dragging his feet. Or perhaps it is NAB. *sigh*

Thanks again! :)

I have a few nab mortgages and given my experience, it would be the bank slowing things down! lol
 
My view.

If you secure a loan against your house, make it separate. A LOC might be OK. But do not cross collaterise. For any reason, whatsoever.

A businiess loan secured against a business, as distinct as one secured against another property, is:
1. Risky
2. Expensive
3. Difficult to get.

$40K for a business "idea" is probably not possible.

To give a little bit of an idea.

I bought my Subway franchise for $700K. Most lenders would give me a 50% LVR against the business only. I would have needed $350K from other sources (cash, borrowing against other properties).

This is against a solid business franchise like Subway- not a new startup or a small group.

One single bank lent 70% against business only (Bankwest).

I took up that loan.

But because the loan is 10 year P&I, at business rates (principal repayment is costing me BIG bikkies, and business rates are high) cashflow is tight.

IMHO, you do not have anywhere near enough to be looking at a business. Yet.
 
If you find someone willing to sell you a business for $40K they're probably not making much money out of it.

With the sort of great due diligence, solid planning and concrete goal setting done so far, the business is likely to be an absolute screamer.
 
Hi

I am currently seeking an 67k loan(50% LVR business purchase price) for an existing retail business, turnover 700k - profit approx 100k - have 3 years financials. Looking to get borrowing with out using any residential security.

If any of the brokers on here can help me, that would be great.

Contact me via private msg or email [email protected]
 
Alistair is in Melbourne why not contact him.

He has already posted a response about assisting clients with a loan to buy a business and would appear suited to assist you further.
 
Hi Jumpinjack,
Good on you for wanting to work for yourself, it can be very satisfying.

Using the equity in your PPOR is sometimes the only way that small business owners can start their new ventures. Given that there is a risk as the money is secured by your home, structuring your business ie. company/trust, may provide an extra level of protection. You may need to seek legal and accounting advice regarding this.

I would however disagree with Geoff, there are a lot of very successful businesses for $40K and less. Not everyone has the capacity to join the big boys of the major franchises.

VIP Lawnmowing franchises are less than $25K and offer the opportunity to make as much or little money as you like. We have had this franchise for 7 years now and used the equity in our home to purchase the franchise. In that 7 years we have gone from 1 PPOR to 7 IPs + 1 PPOR, a successful lawnmowing business that has increased 20-30% each and every year and also we have now purchased an ANZ mobile lending franchise.

A lot of the major franchises have relationships with small business banking managers in the capital cities and have finance options already worked out based on the business plans and projected cashflows of the business.

It can be done, just weigh up the pros and cons and seek professional advice. Nothing ventured nothing gained.

Janine
 
I would however disagree with Geoff, there are a lot of very successful businesses for $40K and less. Not everyone has the capacity to join the big boys of the major franchises.
Just interested, did you buy yourself a business or a job? Can you walk away from your business and let it run? I'm not having a go at you, just interested.

BR
 
Hi Bantam Roosta,

So, if you work for yourself, and not have a full management team who could take over if you wanted to go on holidays , this is classified as a job???

I am sorry but I guess it all depends on the definition of a business.
Is a builder's business a job? Is an electrician's business just a job?
Our business brings in income (just like a job) but we have business obligations (not like a job) ie. GST, workcover etc, we work 6 days/week (not like a job), 10 hours/day (not like a job) and do not belong to a union, so I class this as a business.
The point I was making is that there are multiple levels of small business - small being the operative word and just because you don't have lots of available cash/equity does not mean you are not in the "business" league....
I think it is important to be encouraging and positive.
 
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