According to recent data collated from the Australian Bureau of Statistics in April 2021, purchase of business properties linked to borrower accepted loan commitments, increased by 28%. A number of people are buying their own business or adding to an existing business venture and whether this is a small, medium or larger enterprise, everyone needs capital to cover the cost of the initial purchase. There are a number of ways in which to do this and it is important to be aware of the options available before speaking to your business lending broker.
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Using your Own Capital
Using your own money is one of the easiest ways to buy an existing business. If you are able to use your savings accounts or raise money on a residential property, this is one of the quicker ways to invest in a business. However, it may tie your hands because you could be using savings or funds you have previously earmarked for other projects such as supporting your children through their further education.
The savings that you have will probably also limit the type of business you can buy into, so larger and more profitable enterprises would be beyond your reach. Instead, in order to be able to purchase a large company, the majority of individuals would be better off using part of their own funds with the remaining cost covered by a business loan. As everyone’s financial and personal circumstances are different, it is important to first explore your options with a business lending broker.
Existing Owner Funding
This is something that a number of business investors may have not fully explored yet because it is not common in the business sector. Vendor finance offers the buyer the opportunity to finance buying a business through alternative means. The vendor and the buyer will arrange the finance terms between themselves so that you would pay off the purchase price of the business via instalments to the previous owner. These may or may not include interest rates and the purchase price (and repayments) would usually be higher if you compare it to a standard business loan.
This form of finance does therefore come with a risk because it could be more expensive. You would also not fully own the business and if the vendor went bankrupt, there could be claims against the property and this type of finance is not properly regulated. Therefore, the buyer is very much at the behest of the vendor in terms of any penalties if you miss a payment, for example.
Professional Lending Services
In essence, a business loan is going to be the best option to finance buying into an existing business. Loans are going to vary in the amount you can borrow and the period in which you must repay the money. You will need to demonstrate that you meet the minimum qualification levels to be eligible for a loan. This means providing the last 3 years’ tax information, and ensure you have in place at least 20% of the cost of the business to put down as a deposit.
You will also need to have a financial plan that covers your current budget and includes your personal financial information, as well as a business plan demonstrating experience in the sector you are buying into. Check your credit score as well (you can do this free of charge online) as you will need a good credit score rating. Preparing a cash flow statement of money, including your income, expenses, net profit and any future projections is a starting point.
Then work out what maximum repayment you can afford, what assets you have to offer as collateral, if the money is needed up front or in instalments, and what other equity you have so that you can demonstrate your financial limits. There are a range of products available so speak to a professional who can advise you on the best type of business loan to suit your personal circumstances and the existing business you are buying into.
Speak to an Experienced Broker
Financing the purchase of an existing business can be a daunting decision but armed with the support of a professional, you will make the right choice to meet your needs and your budget. Get ready to expand your horizons today by speaking to your business lending broker.
