Tips to Get a Business Loan?

Hello again!

Sorry about submitting multiple threads within a short period, but I thought I'd keep each thread on a specific topic.


I'm looking into buying a retail business, but have no business experience. I'm looking to get a business loan to partially fund the purchase of the business.

I have a residential property that I can use as security for the loan. The equity in that property is about 4x the amount of loan I'd like to get. I also have sufficient cash for the business' cash flow. What is the chance for me to get the loan, assuming the business I'm purchasing is financially healthy and is profitable? Anything I can do / say / show to the banks that could increase my chances?

Also, I notice some banks ask whether the business is a franchise. Is it generally easier to get a loan for a franchised business?

Thanks very much.


Regards,
Rob

 

Hi robt while I am no MB or FP I would think that a line of credit against your property in a seperate sub account or a stand alone account is a better option.

Franchise generaly means that the is support and training available as well as marketing, you do pay a premium to get that support though and I would think the bank looks at it as being a lower risk.

I would think the bank would like to see profit and loss statements and I would like to see further back than what the vendor is showing to see if the numbers have been padded with family and friends to get a sale.

Slightly off topic I know someone who used to start off niche businesses and get them to profitable before selling them off to cashed up people who in most cases lacked the flair he has in running them. Used to move a lot to find the right places and it's not the way I want to live but to each their own.

 

Bundy has a good suggestion - the LOC option. Often far easier to set up than applying for a commercial loan and the requirements can be quite different. Possibly also find that the % interest will be marginally cheaper. A weakness of an LOC is the possibility of drawing it all down through mismanagement.

 

Rob,
If you have equity and can demonstrate income for servicing, you should be able to get a loan, either a term loan with offset or a LOC secured against your PPOR at residential rates. It is always easier to get a loan while you are employed and have a decent income than after you start a business venture.

If you cannot show income, then an option would be go down the low doc path. there are still a couple of lenders willing to do low docs with no BAS statement requirements, particularly if the LVR is < 60%.

If it is an established business, then you can go down the path of a business loan, the hurdles are higher, business plans, cash flow projections, scenario's fall back positions etc. There are some lenders who will lend at residential rates if you are suing your PPOR as security, check around.

As far as franchises are concerned, most lenders have a panel of franchises that they have on their books that they will lend up to a specific LVR, highest is usually 70%.

Good luck
Greg

 

Rob,

one more tip.

If you are going to be quitting your day job and moving into the new business then the banks may be less likely to lend to you.