Business Loan

V

vmmg1992

Hello Brokers,

My partner and I are considering opening a small lunch bar/food business in the metro area. What would we need to do to get a business loan? We don't have exact figures yet as we are still researching. These are my main questions:

  • How much % of equity will be required on a property to use as security for a new business loan?
  • Can we use a portion of equity (in case I do not have enough on my property) and the rest cash to use as security?
  • Are there any alternative options? or smarter strategies? Like putting our funds in a term deposit etc..

Thanks :)
 
The answer will depend on

1. Are you buying an existing business or starting from scratch?
2. Will you BOTH be working from this shop straight away or will one of you be working else where ( payg etc..)
3. Your age/experience and asset VS debt level
4. Leasing or buying the shop as well?

-General LVR for business loan ( presuming existing is 55% based on cash flow and 3 years tax returns of that business)
- Servicing will be your biggest issue or future cash flow forecast
- Yes you can use equity
- There are 101 ways to finance a business and comm loan....but there's probably 201 reasons why a business loan is rejected :p
So seek advice- first from your accountant so you know how the numbers looks like than your banker.

Cheers
 
Thankyou for your response.

1. It will be a start up business.
2. Ideally we would both like to work in the business but I am not sure how this will work in the initial stages. One of us will have to remain working PAYG to afford the business repayments (unless there is another way)
3. I am 22, he is 25. In the financial services industry. I have 360k loan, property value roughly 400k. We can come up with 50k cash if needed.
4. We will be leasing.

Given the above, do you think it will be possible?
 
I can't comment re bank loans for new lunch bars but if you're a couple looking to start a business I would fairly strongly recommend only 1 of you quits your job initially. This way you'll have some regular income coming in whole trying to get the business off the ground and the pressure will be less.

If things go well the other person can quit then and join the business if he/she still wants to
 
Can I ask what is the best case scenario for this business? Doesn't seem like there is much upside in this sort of business but could be wrong?
 
Start up business + not a lot of equity in your current property at 80% and no proven history...chance are slim...some bank may provide a business overdraft of $10,000- $15,000 but the rate is pretty much credit card rate if it's unsecured (business has no value to secured against) - no diff to a personal loan really...

For a true business loan to buy or start a "business" - you either need
1. Security ( Resi or comm) OR
2. History behind the business to add value
3. Buy an existing business with value
4. New or existing franchise
 
Start up business + not a lot of equity in your current property at 80% and no proven history...chance are slim...some bank may provide a business overdraft of $10,000- $15,000 but the rate is pretty much credit card rate if it's unsecured (business has no value to secured against) - no diff to a personal loan really...

For a true business loan to buy or start a "business" - you either need
1. Security ( Resi or comm) OR
2. History behind the business to add value
3. Buy an existing business with value
4. New or existing franchise
Click to expand...

It was only recently purchased so there is not much equity. Can I utilise whatever equity I have on the property and use cash to fund the rest of the deposit for the business loan? I don't understand how much security we need to fund this loan..

For example, if we were to go ahead with a $100K (theoretically) do we need to come up with 20% of the loan value?
 
Pretty much the bank wont fund any part of the $100 as a normal business loan unless you apply for an unsecured business loan overdraft.

Business loan needs to be secured against a tangible ( Physical res or comm) or non tangible asset ( Business or good will)

In your case your tangible asset is already max out at 80%. so no " tangible " asset left to use.

Also you dont have a non-tangible asset ( ie your business has no value at this point in time)

Sorry to be so blunt/upfront and the bearable of bad news :eek:
 
What we have done for some clients ( as not suitable for all) is to lock up the cash in a term deposit and use that as tangible asset..but the bank will only lend $ to $....so $50,000 in term deposit = $50,000 business loan...

You might think why would we do that??

- Interest is claimable against business
- Still get interest under personal
- the real advantage is we can release the term deposit once the business makes money and we "switch asset"...allowing you access to your cash ( rather than equity)
- Other tax perks but i wont go into to much details here...else you may get lost :p
 
What we have done for some clients ( as not suitable for all) is to lock up the cash in a term deposit and use that as tangible asset..but the bank will only lend $ to $....so $50,000 in term deposit = $50,000 business loan...

You might think why would we do that??

- Interest is claimable against business
- Still get interest under personal
- the real advantage is we can release the term deposit once the business makes money and we "switch asset"...allowing you access to your cash ( rather than equity)
- Other tax perks but i wont go into to much details here...else you may get lost
Click to expand...

I have heard about this method, seems like the best option so far :)
Lot more simple, and I like the fact that you can release the term deposit once the business portion is paid off. Do all banks do this?
 
Not all...and you really need to neg on the rate and most importantly the TERMS of release ...given the loan size you wont have much neg power as well in terms of rate.
 
Pretty much the bank wont fund any part of the $100 as a normal business loan unless you apply for an unsecured business loan overdraft.

Business loan needs to be secured against a tangible ( Physical res or comm) or non tangible asset ( Business or good will)

In your case your tangible asset is already max out at 80%. so no " tangible " asset left to use.

Also you dont have a non-tangible asset ( ie your business has no value at this point in time)

Sorry to be so blunt/upfront and the bearable of bad news
Click to expand...

No thats perfectly fine, blunt is good ! I'd rather be aware of this now and understand why it can/cant work. Thanks for your feedback. I was just confused as I thought the loan would require 20% of the tangible asset's worth instead of 80%. I was aware that business loans accept cash as security too so I will have to look into these options.
 
Not all...and you really need to neg on the rate and most importantly the TERMS of release ...given the loan size you wont have much neg power as well in terms of rate.
Click to expand...

haha I was hoping you'd say yes it was easy !
Is Westpac any good for this?
 
Mick C,

iam in a similar boat in trying to understand the commercial loan side.

The business i am interest is selling for $700K.

It is a franchise business and with all businesses the records provided does not totally reflect the actual if you know what i mean.

So what does the bank look for ?

our PPOR has equity to extract money.

BG
 
bumblegoodie said:
Mick C,

iam in a similar boat in trying to understand the commercial loan side.

The business i am interest is selling for $700K.

It is a franchise business and with all businesses the records provided does not totally reflect the actual if you know what i mean.

So what does the bank look for ?

our PPOR has equity to extract money.

BG
Click to expand...


1. franchise is a different type of lending....much easier if the right franchise is chosen and the right bank to fit that franchise.

Each bank has their "preferred" franchise, broken into 3 groups ( gold/silver and platinum) A gold - LVR of around 55-60% and rate sub 6.3%...and platinum LVR of up to 90% LVR is possible and Rate sub 5.5%

Example:
Jim mowing - gold/silver depending on the banks
7/1 - Platinum with most

2. If the franchise is not on that banks list than LVR and rate will depend on
- 3 years business cash flow ( current)
- The franchise's business plan
- Your business plan
- location
- Business/industry type
- Your experience
- is that franchise on the lenders books at all ( ie for smaller franchise ..if the lender already has franchise X on their books for location A and now you want to open location B etc...

3. I would suggest you speak to a business broker OR as a min ask the franchise if they are on the list of any banks ( they would know ...as the bank carry out a audit every 3-6 month) and neg with the bank on LVR/rate and conditions.
 
Franchise normally have a solid business plan and history + can provide 3-5 years worth of financial for a similar store/location nearby.
 
Hi

Hi,

Good look on your new venture but before doing anything hasty. Please provide me with some info on the following?

1) Why a lunch bar "Etc"
2) Why do you want to work for your self.
3) Have you had experience working in the hospitality industry.

Sorry to ask these questions!!!

Running a small business in these current times are very risky, allot of over heads, not allot of margins and to be honest brutal competition.

When you are buying a lunch bar, one issue is this, limited room to make a profit, you get to a certain point and that's it...

Also I would work in a small lunch place for at least three months so you can see how they operate, see if you could learn some tricks and most of all see what the margins are on each product.
 
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