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Business Loans

Discussion in 'Business & Startup Investing' started by Triu, 2nd Aug, 2007.

  1. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Hi everyone well i kinda of hit a snag. Bank valuation came in a lot lower than i expected. I am argueing the point that it is way to low. But now i am worried if i want to purchase this business which has been trading for many years i won't be able to get enough.

    Does anyone know how much banks lend against existing business with proven cashflow and good net profits for the purchase price.

    Is is still possible to borrow for this business?

    Getting kinda desperate!
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    What sort of assets is the bank disagreeing with you on ?

    They might be taking a pessimistic view by disregarding many intangibles such as goodwill and looking at fire sale prices for tangible assets and legally enforceable contracts/licenses ?

    If this is the case, you need to convince the bank that you won't kill the golden goose - being the value of the future cash flows. This boils down to your business skill & plan. Maybe retaining the services of key employees or past proprietor, or even use an earn-out clause ?

    I'm not prepared to venture any futher on this one - but certainly your Accountant should be able to help as they would have been advising you all the way ???

    Good luck,

    Rob
     
  3. APerry

    APerry Active Member

    Joined:
    7th Jul, 2006
    Posts:
    30
    Location:
    Melbourne
    If you can service the debt probably 60%, definately 50%. Try ANZ, NAB or Bank West. Your main problem with this sort of loan is that they usually ammortise the debt over a fairly short period, so principle payments are a killer. ANZ will probably be the best, their rates are fairly steep, but they will generally allow a longer ammortisation period.

    Regards
    Alistair
     
  4. Simon

    Simon Well-Known Member

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    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Can the vendor finance part of it for you?
     
  5. Adamzski

    Adamzski Member

    Joined:
    10th Jan, 2008
    Posts:
    17
    Location:
    Sydney
    If its such a good business the vendor should have enough confidence in it to still want to make 10-15% a year on it by atleast offering part vendor finance.
     
  6. boringbanker

    boringbanker Member

    Joined:
    20th Jul, 2008
    Posts:
    6
    Location:
    melbourne
    Hi

    Banks normally don't assign value to business unless it one of the approved franchise. Each bank have their own approved franchise list.

    Generally speaking though, when you buy a business, bank will lend you 50% of the purchase price max. The rest you will have to put in yourself either by equity or cash. You will also need to provide other security such as mortage over lease and mortgage over liquor license if it's a bar or restaurant.

    You will also need to amortise the debt over say 5-7 years. The general idea is that a business should pay itself off over that time frame.

    good luck