Do You Lend on Larger Takeovers, Mergers & MBOs?
Yes, we can fund much larger acquisitions, mergers and MBOs (Management Buyouts) but this type of funding is quite different to smaller business purchases. We can fund large acquisitions on a bespoke funding basis.
You can find out further details on our offering by talking through your circumstances with one of our advisers.
Types of Funding Available When A Business Is Being Purchased
There are number of options available depending on the circumstances. The type of funding that’s most suitable will depend on a number of factors, and in some cases, a combination of the below options may even be suitable.
The most common types of funding are the following:-
Unsecured Business Loans
Unsecured business loans can be ideal for those looking to buy smaller companies without a lot of assets. When taking this route, you will usually have to provide a personal guarantee, meaning the lender can pursue you personally should you fall behind on your repayments.
As there is very little security for the lender, affordability and your business plan will be key to the application. Adverse credit will be a major negative and could cause real issues for your application.
These loans are quick to complete, and we can usually fund these loans in as little as 5 days if all information is provided upfront.
Secured Business Loans
Secured lending involves a charge being placed on your property by the lender when the loan is taken out. This means that the property may be at risk if you fail to keep up repayments.
Although this increases the risk for you, it does decrease it for the lender and as such may mean that the lender takes a slightly more relaxed view. As such, your chances of being approved will increase if suitable security is offered.
As security is being offered, it may be easier to secure funding in this way without a deposit and the lender may be more lenient about adverse credit.
Secured lending is available for larger loans and we can often offer longer terms than would be possible using unsecured lending.
Due to the extra processing involved in secured lending, including a survey report on the property, these loans can take a little longer to process. Funding is usually available in 2-3 weeks.
Asset finance involves using the assets of a business as security for funding. This type of funding can be used as security in much the same way as a property would be when taking out a secured business loan.
Where you have your own business in the background, we could potentially use the assets of both your current and the new business as security.
In many cases, the funder will purchase the assets from you and you then slowly purchase it back through the agreed monthly repayments.
When taking out asset finance, you are placing your assets at risk should you fail to keep up repayments and could lose them in such circumstances.
Where there are significant takings each month on delayed payment terms, invoice finance may be used to partially fund a business purchase. It works by allowing you to borrow against the future income, with funds being released when the invoice is issued, rather than when it is paid.
Invoice finance applications are judged on the strength of the business who is to pay the invoice as well as your own business. As such, you will need a clear breakdown of the customers of the business.
Where you’re buying the premises of the business in addition to the business, a commercial mortgage could be the best option for you.
Commercial mortgages are available up to 80% of the property value, and in some cases, we can offer 80% of the going concern value – the value of the business and property combined.
Commercial mortgage rates are generally lower than those offered on business loans and the terms longer.
The underwriting is generally more involved and as such applications can take 6-8 weeks to complete.
Advantages of Buying an Existing Business
There are a number of advantages to buying an existing business rather than starting a new one. Here is a look at the pros and cons of this approach:
- Buying a profitable business means you will be able to enjoy immediate income and cash flow
- Established trading businesses will have an existing customer base to market
- Processes and supplier lines will already be in place and operating well
- You can be secure in the knowledge that your business is profitable and has suitable demand
- A strong reputation will stay with the business
- You will pay a premium for a strong business
- There is a danger that some customers may no longer work with you once the previous business owner has moved on
- Any previous reputation or customer service issues will become your problem
- You will be bound by any contracts agreed to by the previous owner
- Staff may be resistant to a new way of doing things
What Information Do I Have To Provide?
When applying for a loan to buy a business, you will need to provide certain information to the lender to enable them to make a lending decision. Although the exact documentation needed will vary from application to application, the lender will usually need the following:
- A fully completed application form
- Financial projections outlining expected future trade
- Two years’ accounts for the business
- Three months bank statements from the business (in some cases)
- Six months’ personal bank statements
- A CV detailing any relevant experience
- A detailed business plan
What if There Are No Assets?
Unsecured business purchase loans are designed to be taken without security. As such, although applications where the business has a strong asset base are desirable, it isn’t crucial. If you’re looking to buy a business with no assets, let us know and we may still be able to fund it.