Your new business idea is ready to go. You’ve seen the business you want to buy. You’ve done your research, crunched the numbers and you feel ready to move forward. But acquiring a business is a big decision. Taking out a loan to buy a new business can be a complex, nerve-wracking and time-consuming process. So, where do you start?
Getting a business acquisition loan
When it comes to business acquisition, planning, research and thorough due diligence go a long way towards obtaining the funds you need. Until you have done this, you’ll have no real idea of the capital needed to move ahead with your plans. Next step, you’ll need to get a loan.
When approaching lenders for money to acquire a business, you’ll need to be able to make a solid case for the loan and prove you can pay it back on time.
However, applying for a loan is still not an easy task. So, we have put together some steps to make the process smoother.
Preparation for a business loan – what do you need to do?
1. Prepare your business plan
While every lender has different requirements, all will look at the standard factors required of all loan applicants, such as your credit history and assets etc. But business loan borrowers must also have a business plan.
A detailed business plan is a crucial document for obtaining a loan even for an existing business. The information in the plan is used to gauge your business’s chance of success and therefore your ability to make loan repayments.
It should outline the nature of the business, your goals, and how you plan to use the loan to achieve those goals. As it needs to be thorough, a good business plan takes time to develop.
Banks or lenders will want to know that your business idea is viable and sustainable. To do this, they look at all aspects of the business.
Lenders will want to know:
• what the business is
• what products you offer
• what the competitive landscape looks like
• where your business is located
• what your building premises are – owned or leased and what the terms of the lease are
• your experience in this field
• your intended role in the business
• who your key personnel are.
You will need to produce:
• a business sale and purchase agreement
• financial statements
• sales strategies
• your overall financial plan
• at least years’ worth of past revenue and profits, if available
• financial projections
• forecast sales and profits one to two years into the future.
2. Prepare your funding request
To secure a business loan, you need to clearly itemise why you need the business financing. The funding request will need to state the amount you wish to borrow and what you will use the money for. Lenders want to know how their funding will contribute to the overall success of your business.
3. Clarify the terms of your loan
As with any loan, you need to do your homework. Clearly determining your borrowing needs – how much money you need to borrow, why and for how long – will help you make informed decisions about the loan product that will be best for you.
Different lenders will have interest rates and lending terms which could affect your overall loan cost. Each product has its own advantages, disadvantages, and eligibility requirements. To choose the right loan product at the best terms for your business, you need to consider factors such as interest rates, repayment terms, and fees.
Usually, banks will lend up to 50% of either the value or purchase price of a business. If you require a business loan of more than 50%, you may be able to offer another asset as security. A bank may then lend you up to 80% of this asset.
Want to simplify the process of securing a business loan?
The first thing to do is to talk to a mortgage broker. You can, of course, approach lenders on your own, but you’ll find that business mortgage brokers can offer you a world of expertise and benefits.
We sat down with Aseem Agarwal, Head of Mortgages at Global Finance, to find out how his mortgage broking team helps clients secure business loans.
“We know how to best set up a loan application so that it gets approved”.
Aseem explained that the first thing his team does is help clients fully and properly assess the business they wish to buy. They also analyse their clients’ current financial positions.
“Our mortgage brokers ensure that clients thoroughly understood what is required for a loan and we handle much of the admin”.
A mortgage broker acts as a middleman between their clients and prospective lenders. “We help provide a complete picture for the bank”.
Mortgage brokers provide guidance and advice on loan products, interest rates, and repayment terms. As an example of how their experience and connections help clients, Aseem spoke about how they will negotiate with lenders to get the money needed at lower interest rates with the most favourable terms. As an example, Aseem talked about how they can assist clients to secure a business loan with home loan rates.
Overcoming Obstacles: How Global Finance Helped Skilled Chefs Buy a Restaurant Despite Lockdown Challenges
In this case study, we explore how Global Finance mortgage broker helped skilled chefs secure a loan to buy a restaurant after the Covid-19 pandemic. The pandemic had prevented many hospitality businesses in Auckland from trading, and the financials of the restaurant were affected. The challenge was to prove to lenders that the business was viable despite the books telling a different story.
Background:
Our clients, skilled chefs, were looking to buy a restaurant just after the Covid-19 pandemic had hit Auckland. Due to the pandemic, many hospitality businesses were forced to close or operate on reduced hours, resulting in financial difficulties. The financials of the restaurant our clients were interested in purchasing showed that the business was profitable for one year but not so good for the year when the business was not able to operate fully.
Challenges:
The main challenge was to convince lenders that the business was viable despite the financials showing otherwise. The previous owner had operated on reduced hours and had the expense of managers running the business, which had greatly affected the P&L sheets. The challenge was to demonstrate that our clients could turn the business around by being onsite, reducing running costs, increasing the restaurant’s offerings, expanding the business, and improving revenue going forward.
Solution:
Our team of mortgage brokers worked closely with our clients to prepare a complete business plan that convinced lenders the business was sustainable. We demonstrated that as chefs, our clients would be onsite to run the restaurant themselves, reducing running costs. Additionally, their skills and experience would enable them to increase the restaurant’s offerings, improve revenue going forward, and project sufficient profit to service the loan.
We also negotiated on behalf of our clients to structure the loan so that a portion was against their homes, resulting in a lower interest rate.
Outcome:
Thanks to our team’s efforts, our clients were able to secure the loan they needed to buy the restaurant. They were very happy with the outcome, and Auckland diners had another excellent restaurant to enjoy. Global Finance played a crucial role in helping our clients get a loan after lockdown and achieving their dream of owning a restaurant.
The information and articles published on this website are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in articles on this website should not be substituted for financial advice. Financial advice should always be sought. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or their employees liable.