Business Banking & Finance Has anybody had experience with business loans?

hi all,

Am currently looking to get a business loan or LoC. I have heard business loans often need to be secured by personal assets to get attractive rates.

However, in the event that you have a stable business with a double digit track record of profitable years, is there a chance to get good financing without using non business assets as security?

Use of funds would be for growth purposes.

 

I did a cashflow based lend last year to expand the IT business into Adelaide. Needed a strong profitable existing business, and no personal asset security just directors guarantee and general charge over assets of existing business. Was a 75% lvr lend. My broker @Corey Batt set it up, he has a fantastic knowledge of commercial lending.

 

my experience,
very hard to get business loans unless you are a doc,
easier to get one for a franhcise
easier to get for established one
harder for non franchise
even harder for a new business

low lvrs, eg 70% max, more like 50-60%

the above is my experience

 

You have a couple of options depending on the nature and size of the business.
Some banks have industry specific service (eg brokers, pharmacy, legal etc).
If you have high stock volumes you can borrow against this with certain lenders.
Alternatively you could look at funding against your debtor book. This doesnt really leverage equity, but rather brings forward cashflows. Works well in some situatoins.

Largely though - the answer is "it depends". Best to get specific info from either a broker or business banker.

Blacky

 

Business loans are very much rate for risk - the more security, the lower the rate.

A Grade Security: full dollar matching against equity in residential or commercial property OR prime franchise purchases (McDonalds etc)
Rates: 4-6% p.a range dependent on loan size, security

B Grade Security: Partial/blended security from residential or commercial property - ie 50% secured, 50% unsecured
Rates: 5-8% p.a range dependent on loan size, security

C Grade Security: Unsecured against personal assets, strong financials and growth potential with EVIDENCE, charges placed against business and directors guarantees
Rates: 9-13% p.a dependent on loan size, preferred terms (lower rates for lower loan terms)

D Grade Security: Charges placed against business and directors guarantees
Rates: 13-40% p.a

If there is substantial equity and servicing available in the personal capacity, it's possible to otherwise draw equity and onlend to the business structure at <4% rates. This offers the most cost effective source of funds and controls the risk relationship somewhat between the personal and business entity. (how many business owners are going to foreclose on themselves for default from the business?)

 

@Corey Batt - are Macquarie still playing in this field? I had a client who did 2 loans for separate businesses through Macquarie.

 

Thanks for the insights. As a slight off topic, I am very interested in Franchising, any chance somebody in this thread knows someone who has tried running a Zambrero (mexican grill)?

Thanks for the insight. Nature of business is retail so it does own stocks which may be checked by the bank for security. Cashflow would be nice but primary reason for borrowing is to funnel into business growth. Does the bank need to see a business plan/strategy for this?

Will definitely be asking for specific advice, thanks again!

Thanks for the insight, does this mean that rates may also go down? Would love to establish a nice relationship with a bank. If I am able to continue demonstrating capacity to repay loans, I may negotiate better terms!

 

Thats interesting, Subway must have been becoming stale. Sam Prince seriously sounds like an awesome guy, philanthropist and business man! Some time ago I was fortunate enough to hear Stuart Cook (CEO of Zambrero) at a conference and very briefly chat to him. Since then it has been interesting to follow the brand. I really liked the initiative Zambrero had and the precedent it is setting in the business world with regards to philanthropy.

Quick additional q: Is the person you know based in Sydney?

 

Macquarie are definitely in the business loan business.

 

so hypothetically, if some youngish guy or girl with no house, just a say $75k income, and no assets,
wants to start their own cafe or little restraunat or online shop

and htye approach the banks for a loan for stock or fitout or equipment etc. etc.
there is virtually no chance of a loan from a bank?

 

In theory could potentially borrow against the equipment/fitout of the cafe using HP/Leasing finance. Its not uncommon.

Bank would probably want to see some fairly robust business planning, history of owner/operator and preferably some level of 'back up' income. Loan would be short term (5years) with decent amount of equity up front.

Depends on a lot of factors. Doesnt sound easy due to the lack of experience, assets, and low income. But again - that depends on the amount looking to be borrowed and other factors.
Equipment loans via some financiers can be a bit like 'pay day' and store cards. As long as your heart is beating long enough for you to sign the docs, you will be eligible for finance.

Blacky

 

Correct. There are many lenders which specialise in the equipment space, particularly hospitality which will finance businesses with ABN's only one day old and no trading history - it's an odd subset of the industry between residential, commercial and traditional business lending which is very flexible varied in terms of rules and cost.

 

fair enough, looking from a lenders perspective, a new business, no assets to back up, no history, and only equipment might as well be a black/red type of risk,

but it appears that it is very difficult for somone with little experience to start their own new venture and get funding

 

Yeah - equipment/store fit out only! High risk to the bank, which is why interest rates and fees are so high. They will also throw in a fixed and floating charge over the company - which basically means any assets of the company can act as security (hard to enforce and not strong security).
I dont know the current rates - maybe around 10% + a bunch of fees. Maybe @Corey Batt can confirm

Someone trying to enter a business with no background, no assets, no experiance and a high entry cost - yeah.... its not easy.

Blacky

 

Main criteria banks are looking for are security and ability to repay debt. The lack of either will cause issues.