Introduction
For many new business owners, the path to acquisition often hits a roadblock: funding. SME funding is often seen as time-consuming and complicated, but it doesn’t have to be. Help is available.
At BusinessSales, we believe in empowering business owners with opportunities to take the next step. We’re here to facilitate smooth and successful transitions, ensuring businesses keep thriving into the future. And a crucial part of that smooth transition is knowing your finance options.
Why You Need to Take Action Now: The Power of Early Financial Planning
Often business buyers make the mistake of waiting until they’ve found the ‘perfect’ business before considering their finance options. This can be a costly error. Taking action now, well before you’re deep into negotiations, means more options and often paradoxically a better deal.
Acting early can mean you get:
Better Rates & Products
Approaching finance proactively means you will have access to better rates, products and lenders. Most lenders often look more favorably upon prepared buyers, giving you a stronger position to negotiate at better rate & repayment terms.
Certainty to Move Quickly:
When you have a clear funding strategy in place, you’re in the driver’s seat. This puts you ahead of other buyers who may be scrambling to secure funds, allowing you to move quickly and decisively when the right opportunity arises.
Remember, in the fast-paced world of business acquisition, speed can be the difference between securing your dream business and missing out.
The Benefits of Expert Financial Advice
Navigating the world of business finance can be complex. There are numerous funding avenues, each with its own intricacies. This is where expert advice becomes invaluable.
Engaging with financial experts, particularly those with deep experience in business acquisitions, provides:
Clarity and Transparency
Banks credit departments often seem like a black box.
Talking to an experts can demystify how to present your plan to the bank so it matches their criteria and is more likely to be approved At the very least it will help you understand all your options clearly, leading to more informed decisions.
Access to a Broader Network
One major mistake I see buyers making is thinking business finance will be like getting a mortgage.
The truth is business finance, it’s nothing alike. For example, most lenders have a limit on lending by industry. If the bank is at the limit you could have the best business ever, but you application still won’t be approved.
Experienced advisors often have relationships with a wide range of lenders beyond traditional banks, opening up more diverse funding opportunities for you.
“No names” Conversations
Professional finance brokers generally have access to a relationship manage with lenders. This allows them to have what’s often called a “no names” conversation.
The finance broker can essentially ask “in these circumstances” what would the bank do” this allows them to get an non-binding but still pretty reliable response from the bank or lenders.
This is helpful if the bank says yes but critical if the bank says no, because if you apply yourself the rejection is added to your credit file whereas the result of a “no names” conversation isn’t – after all there are no names.
Why Your Bank Isn't Always the Best (or Only) Option
It’s natural to think of your bank first when thinking about finance. But banks aren’t known for the loyalty for a reason! Just applying with your current bank isn’t always the best (or only) approach for getting business finance.
Here’s why:
Impact on Your Credit File
As noted above every loan application, especially with traditional banks, can leave an inquiry on your credit file. Multiple inquiries in a short period can negatively impact your credit score, potentially making it harder to secure funding later or affecting the rates you’re offered.
Lending Appetite of Your Bank
Banks often have specific lending criteria and ‘appetites’ for different types of businesses or industries and these change over time.
If your in the wrong industry of the business acquisition doesn’t fit neatly into their current lending parameters, you might face rejection, even if you’re a strong candidate for finance elsewhere.
Their internal policies might be more rigid, limiting your options and potentially slowing down the entire process. A rejection from one bank doesn’t mean you can’t get funding elsewhere, but it can be discouraging and time-consuming and ultimately cost you more.
Real Case Study: Tom's Equity Strategy!
Here’s a real-life example of how taking early action and understanding your options can get you a better deal.
Tom’s circumstances:
Tom was seeking to purchase a wholesale distribution business for $1.2 million. He owned a residential property valued at $850,000, with only $100,000 in debt remaining.
What Tom did (with good advice)
Tom took action early. As a result, Tom was able to extract $680,000 in equity from his home, netting $580,000 after deducting his existing $100,000 mortgage.
Getting a Better Rates and Product
Tom accessed this $580,000 at a competitive interest rate of 6.19% given his current employment & circumstances. He then loaned the funds to a newly formed company that his accountant had created to complete the business purchase.
This internal loan agreement also provided material tax advantages based on his accountant’s structuring advice.
Tom then secured the balance of the funding — a commercial loan of $620,000 at a higher rate 8.29%.
Had Tom left this funding until after making an offer on the business, he may have missed out on both the better home loan rate and the opportunity to act quickly. Because Tom had his deposit and structure finalised upfront, he was able to move faster than other interested buyers and ultimately Tom was able to purchase the business.
Like Tom, you can be in control of your business acquisition journey. Don’t let funding be the barrier to buying a high quality business and securing your future.
Getting finance advice early from an experienced commercial finance broker and exploring all your options, you’ll be equipped with the clarity and confidence to make your next move.
If you don’t know an experienced broker give us a call or complete the form below and our team will help connect you with an experienced professional to help you successfully buy a business.
Thinking about buying a business?
Let’s face it getting finance to buy a business your business can be tough.
Anything worthwhile is!
We’re here for you, whether you want a quick chat to make sure your on the right track, or a introduction to a professional who can help you get the best deal. We’re here to help.
