Financing a Business

[Sabitor_84]

Hello All,

Firstly I didn’t know where to put this so given its finance related I thought I would plonk it in here so all the finance peoples will see it.

What are the requirements to obtain finance to buy a business?

Is it possible to obtain finance to buy an existing business unsecured using a big deposit? For example lets say i wanted to buy business xxxx which has been operating for 10 years and it was going to cost $500,000 could i obtain the finance from the bank using say a $200,000 (or less) deposit??

I’m not looking for exact numbers. Just yes or no and ball parks.


How does the formula change if i wanted to buy a "proven" business by way of franchise?? Do these businesses obtain finance easier?

Being young I don’t have piles of equity sitting in property which I can secure a business loan against so I’m trying to work out what’s the minimum I need.

Thanks everyone for the help,

Matt

 

[Peter_Tersteeg]

It's difficult to give a specific figure on what you would and would not be able to finance.

Lenders tend to have profiles for various franchises because they're a known business. In some cases you might be able to borrow 60% against the business value.

Against other businesses, the amount could be significantly less. They'll not only look at the business, but they'll also look at your experience in both running a business and that particular industry. They'll look at key skillsets within the business and if they'll be retained, what the physical assets of the business are and the market for that business.

 

[Nommy]

Little chance of finding a bank to lend you that sort of $$$ unsecured.
If the business is not under the banks approved franchise list and you are seeking an unsecured loan for the business i.e 500k business 200k deposit seek 300k loan.
Banks can lend against franchises if accepted under their sector policy. Dependent on the type of franchise it can be anywhere from 50% - 70% lend against the business.

 

[JamesGG]

I was giving some thought a little while ago about buying a bar, with a view to some rather nice cashflow returns and 'free' drinks on a Friday night ). Manager in place, established reputation; was a reasonable prospect but the vendor wasn't willing to negotiate enough for my liking.

Anyway, in that process, I had quite a few discussions with my business banker at the NAB as to what could or couldn't be done.

Things that she wanted to know, included;

- term of the lease (loan would never be longer)
- recent and historical turnover
- recent and historical profit
- status of current management
- other staff retention rates
- value of stock and equipment compared to the business
- further details on my experience in business
- other security that could be offered

And, no doubt, quite a few other things that I don't recall off the top of my head. She made me jump through quite a few hoops but the experience was totally worthwhile.

Good luck with it, mate!

 

[Property Meister]

What about non franchised business that are doing well???

as in, surely if you have a non franchised business, that ticks all the boxes, surely they might not be as willing but it shouldn't be that much worse off.......... well I hope

 

[JamesGG]

What about non franchised business that are doing well???

as in, surely if you have a non franchised business, that ticks all the boxes, surely they might not be as willing but it shouldn't be that much worse off.......... well I hope

That bar (above) that I mentioned wasn't part of a franchise or anything, and I must admit to being pleasantly surprised to how my girl at the NAB was looking at the deal. I would hazard a guess that a big part of it was in the delivery, and the existing relationship.

 

[Rolf Latham]

Unless the business is on "the approved" list, you will always get the question as to what other security you have to offer.

All the other fluff they ask about is strictly window dressing if there isnt some other security.

Even say a mortgage broking business with a cashflow of say 250 000 "passive" income wont be looked at by the traditional lenders without "other" security. Dumb but true.

ta
rolf

 

[Sabitor_84]

Hey All,

Thanks for the replies.

From what im reading it appears that franchise businesses are the way to go for someone in my position.

Kind regards,

Matt

 

[DebtEquity]

What if the Franchise is quite new..... from overseas.... Do the banks usually lend at least 60%?

They would prefer some resi property if that was offered i bet.

 

[Sabitor_84]

I was giving some thought a little while ago about buying a bar, with a view to some rather nice cashflow returns and 'free' drinks on a Friday night ). Manager in place, established reputation; was a reasonable prospect but the vendor wasn't willing to negotiate enough for my liking.

Anyway, in that process, I had quite a few discussions with my business banker at the NAB as to what could or couldn't be done.

Things that she wanted to know, included;

- term of the lease (loan would never be longer)
- recent and historical turnover
- recent and historical profit
- status of current management
- other staff retention rates
- value of stock and equipment compared to the business
- further details on my experience in business
- other security that could be offered

And, no doubt, quite a few other things that I don't recall off the top of my head. She made me jump through quite a few hoops but the experience was totally worthwhile.

Good luck with it, mate!

Hey James,

I know a couple of people who own bars and they are very hard businesses. Both of the people i know have bars in the city and they can be very hot/cold depending on what the "in" thing is.

One of these bars i was a regular at and in the space of 3 weeks it went from lines out the front to dead as a door nail. The crowds simply move onto the next "hot" place to be seen.

What sort of bar where you looking at? Night club style bar or afterwork drinks bar??

What was its trading history like? Constant week in week out or up and down?

Also, How many nights did it trade? Most club bars are only busy 1-2 nights a week leaving only a small window to make your money.

Kind regards,

Matt

 

[JamesGG]

Matt; have PM'd you...

~J.

 

[Property Meister]

unless you are really into the industry and you are fairly creative and you are prepared to change the theme/mangement/style/outlook/atmosphere/menu or whatever, and you are happy to do this, or possibly look for a 1-3 year investment, I think a bar would be one of the more difficult businesses to get into..

but thats just my 2c

 

[geoffw]

What if the Franchise is quite new..... from overseas.... Do the banks usually lend at least 60%?

No way.

Most banks were giving a 50% lend on Subway- there were very few offering 70% on the security of the business only.

Even then, you must be trading well for the term of the loan or you could get penalised (higher interest) or even have the loan withdrawn.

 

[Sabitor_84]

Matt; have PM'd you...

~J.

James,

No PM received. Can you resend?

Cheers,

Matt

 

[The Shack]

Business Finance

Hi all. Just joined today & noted someone else is applying for unsecured finance for a business venture.

I am doing the same at the moment.

I currently own my business and bought it 3.5 years ago. I have tripled the size of it since.

I am in the process of buying another business with my wife. It is exactly the same business but in a neighbouring suburb. Like the one I bought previously, this one is poorly managed and we know that we can do the same with this one as we have set up all the systems for success.

So we are in a similar situation to yourself - waiting for the reply. We have an IP and we are having that refinanced and after a small unsecured business loan of approximately $70,000.

Wish us luck!

L Labour
U Using
C Correct
K Knowledge