How to go from a NO to a YES! Securing Finance to Purchase a Business
Banks are in the business of lending money. Those billion-dollar profits you see the major banks announce every quarter; you guessed it, it’s mostly the interest they have collected on the money they loaned!??
There is always a way to fund an acquisition; the question is, does it make sense? And to who??
It’s simpler than it sounds, as each bank has a credit policy and if you don’t meet this policy, existing customer or not, they won’t lend to you. It’s that simple.??
Who does what?
Mortgage brokers are responsible for 70% of all loans in the residential lending space. Unfortunately, this figure is significantly lower in business lending.??
The most common path for business buyers is that they will either approach their existing bank or the bank of the seller. Most of the time this ends up in disappointment or terms that just make no sense.??
Very few commercial brokers specialise in business acquisitions (like us) and therefore deals are going to the wrong lenders or getting declined. A good commercial broker will know how to navigate each deal and which lender will get you the best result.??
What the banks want?
Finance providers can make things more complicated than they need to be. In short, banks want security, and they want to make sure the business can afford to pay its debts. So, does this mean you need to have equity in property or cash to cover the purchase price???
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No, however they sure do help. The business is an asset, which is usually made up of goodwill and hard assets like machinery and stock. These can all be financed; you just need someone experienced on your side that knows which banks to approach.??
How much can you borrow?
Commercial lenders want to see that there is enough income to service the debt. Think about it this way; if you purchased a business that makes $200,000 per year, would it make sense to take out a debt with repayments of $250,000 a year? Of course not. Any lender will want to see at least 1.5 x debt cover. This means that if the business makes $200,000 a year, then it has no more than $133,000 of debt repayments per year (1.5 x).?
Where to start?
You’ve probably already started looking at businesses for sale. That’s great. The next step is to make a connection with a commercial finance broker. Find out what your capacity is, and workshop deals as they come up to find out exactly what you can and can’t do. This could be the difference between securing or not securing that perfect business.??
Reach out to us at [email protected]?
Ph: 0424 393 024?