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Rossberg02
Member since Jun 2016
1628 posts

Advice on purchasing a business with a loan
I have been in talks with a business owner on purchasing his business and have received his profit/loss information. While he shows a loss in 2017 there has been a drop in lease price that would cancel that margin. Payroll and few other things can be dropped and added to the black. Overall I’m looking at about 30-50,000 profit if things were the same in 2017 (I understand things definitely change). There is room to grow in the area and some addition things that can increase gross profit. I also have some resources, as I have friends in the same field in locations far enough to not cause competition.

Being as this business is turn key, how should I go about finding loans? I do not expect to pocket money until this loan is paid and expect to pay greater than the monthly payment. Should I ask for a higher amount than the purchase price in order to balance a counter from the bank without much of my own money being put in there? Should I ask for purchase price and 3 month of operation cost?


Tigerpaw123
USA Fan
Louisiana
Member since Mar 2007
12905 posts

re: Advice on purchasing a business with a loan
Does not matter what you ask for? They will want you to have skin in the game, don’t expect to borrrow 100%, very likely they will only loan you 80-90% regardless of what you “ask” for they will want to see where the money is going,and yes figure in some money for operating expenses for a few months

Words from a biz banker friend of mine

“We believe in your dream, do you?”


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yellowfin
Chicago Cubs Fan
Coastal Bar
Member since May 2006
90243 posts

re: Advice on purchasing a business with a loan
What's the value of the assets you're buying?


That's a good starting point


Rossberg02
Member since Jun 2016
1628 posts

re: Advice on purchasing a business with a loan
Value of assets is roughly 100,000. Lease is locked in for 3 more years.


yellowfin
Chicago Cubs Fan
Coastal Bar
Member since May 2006
90243 posts

re: Advice on purchasing a business with a loan
I'd expect to borrow about 80k then


Rossberg02
Member since Jun 2016
1628 posts

re: Advice on purchasing a business with a loan
Would a personal loan be a better option? The owner mentioned possible owner financing the place. What would be fair owner finance parameters?


yellowfin
Chicago Cubs Fan
Coastal Bar
Member since May 2006
90243 posts

re: Advice on purchasing a business with a loan
Owner financing would by far be the better option unless you had some personal asset to put up for collateral


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lsu xman
Member since Oct 2006
12233 posts

re: Advice on purchasing a business with a loan
100K investment with a 30K profit is a banging deal.

It might be tough getting an 80K loan for a business that showed a net loss on paper.

Bank will offer you an 80K loan and you will likely need an additional 6 months of capital reserved to pay the loan.

80K at 5.5% 10yrs(+closing) is roughly $1K/month.

Bank will want to see you with at least $2K of personal income left after all your personal expenses to make sure you're capable of paying the loan in case the business generates zero profit.

If not you will need someone to cosign and collateral liquid assets(saving acct, investment acct, etc.)

Starting point, you'll need @30K cash. If not, no loan. JMO.

Just my personal experience with a recent business loan application.

This post was edited on 2/10 at 2:02 am


MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

re: Advice on purchasing a business with a loan
You will be lucky to get a bank loan that is 60% of the value of the business. Get current owner to finance the rest if you have no capital.

The downside of owner financing is that he could take back the business if you miss a payment.
This post was edited on 2/10 at 5:26 am


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Rossberg02
Member since Jun 2016
1628 posts

re: Advice on purchasing a business with a loan
I have savings, retirement, investments, and another very, very small business that is owned and paid for. I hope that will help with acquiring a loan.

Owner financing scares me as to the guy basically owns the business until I pay him off. Would it be best to increase the loan length, the interest, and a lower note but pay him off sooner or keep the terms short with a low interest and high monthly note?



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