Looking for a loan to buy a running business

[Harish30_4]

I am new to this. we are looking to buy a business thats been trading since 2001. its a convenience store+post office. £80k value plus stock. we are happy to put down 20% but need 80% loan or evn 70%. cant find anyone who can provide a loan to buy existing business. i dont own a home either. but have a full time job £65k a year. anyone can help?

 

[Paul Norman]

Whether the loan comes from a bank, or from an investor, or from me, all will need to be satisfied that the loan carries minimal risk. There will need to be security against the loan, and the stock is unlikely to provide that.

Are you proposing to continue your job and use your salary to fund the loan?

You will, at the outset, need historical accounts, and detailed projections before anyone will even talk to you. With those, a bank might be willing to take a look, but there will need to be more information than we have here - which, of course, they will request.

 

[The Byre]

Have a read through this lot here - http://ukbusinessbrokers.com/gallery/

What reasons for not providing a loan are the banks giving? (At a wild guess, they probably do not think the shop is worth £80k.) At that price, it looks as if it might be a job disguised as a business. Also please remember that and rent payable is not an asset, but a liability and should depress the asking price.

If the present owners are working in the business, a fair wage for their labour must be removed from any reported gross profit. Too often I hear "Oh we're making £40k a year EBITDA so £80k is a fair price!" Er, no they're not. Not if their own labour is not subtracted from the £40k p.a.

Admittedly, £80k is not a great deal of money for a business, but it gives a bank or other lender no security. You would probably have more joy with the banks if you buy a freehold shop and start your own business from scratch.

Also, the price of a business depends on the structure of the deal.

 

[Harish30_4]

Whether the loan comes from a bank, or from an investor, or from me, all will need to be satisfied that the loan carries minimal risk. There will need to be security against the loan, and the stock is unlikely to provide that.

Are you proposing to continue your job and use your salary to fund the loan?

You will, at the outset, need historical accounts, and detailed projections before anyone will even talk to you. With those, a bank might be willing to take a look, but there will need to be more information than we have here - which, of course, they will request.

Thanks and yes i am going to continue my job as have a friend (business partner ) he will be running it and i will do weekends in shop. we can provide business accounts, card payment statements, returns etc from current owner if required. but really dont know who will offer a loan based on the income that business is currently producing. everywhere online i am checking but all says i need to own the business for atleast 12 months or 3 months and than i can apply for fund but than i am like i dont need it after 3-12 months. need now to buy that business.

 

[Mark T Jones]

The Start Up Loan company will consider business purchases - para from their website below

Purchasing existing businesses
You are still eligible to apply for a Start Up Loan if you are purchasing an existing business, even if that business has been trading for more than two years under different ownership, provided you personally have not owned the business for more than two years.

Please note, you will be required to have sourced a copy of the financial accounts for the business along with your application. Furthermore, if the business was previously or is currently at a loss you will be expected to address this issue directly in your business plan.

 

[Chris Ashdown]

Work with the owner with staged payments spread over a period of say one to two years plus your deposit

 

[Harish30_4]

The Start Up Loan company will consider business purchases - para from their website below

Purchasing existing businesses
You are still eligible to apply for a Start Up Loan if you are purchasing an existing business, even if that business has been trading for more than two years under different ownership, provided you personally have not owned the business for more than two years.

Please note, you will be required to have sourced a copy of the financial accounts for the business along with your application. Furthermore, if the business was previously or is currently at a loss you will be expected to address this issue directly in your business plan.

thanks for your advice. i did try applying this online just now me and my partner both direcotrs so both can apply individually. good news is credit check passed and now just need to upload business plan, accounts from current owner waiting on that and hopefully we will get accepted. thanks

 

[Financial-Modeller]

IIRC a business with a sub-Post Office means that the vendor holds a license to operate a sub-Post Office under a franchise-type agreement, but is also in receipt of a monthly payment from the Post Office group/parent.

Whilst you will need to secure the transfer of the license from the current holder (perhaps with permission of the PO/franchisor), that payment (which is pretty much guaranteed to continue for the duration of the license) will be attractive to potential lenders, and could help with your loan application, and pricing.

 

[Clinton]

Have a read through this lot here - http://ukbusinessbrokers.com/gallery/

Thanks to @The Byre for recommending my website. This article of mine may be of particular use to you at this time: How To Buy A Cornershop, Newsagent or Post Office. As @Financial-Modeller says, there are issues with PO / Lottery type licences! I've covered stuff like that in my article.

... but really dont know who will offer a loan based on the income that business is currently producing. everywhere online i am checking but all says i need to own the business for atleast 12 months or 3 months and than i can apply for fund but than i am like i dont need it after 3-12 months. need now to buy that business.

Your first port of call should be the owner himself. I don't know why you're looking elsewhere.

This is a crap "investment opportunity". I'll bet he doesn't have a queue of buyers waiting to buy his shop. You're likely his only hope. Drive a hard bargain and ask him to fund the remainder by allowing you to pay in installments over the coming years.

And whatever you do, take expert advice from the start. You are completely clueless when it comes to buying a business. Very, very clueless. So you need to pay good money to a trusted adviser to hold your hand and guide you. Go find one*!

And then budget £10K+ for a good accountant and lawyer to assist with the transaction. Don't do it without a good transaction lawyer acting for you (not acting for both sides)!

*No, not me, I'm fully booked up and this is way below the price point at which I'd get involved.

 

[bodgitt&scarperLTD]

I'd keep your 65k/year 40 hour a week job, rather than pay 80k for a 80 hour/week job....

 

[DontAsk]

IIRC a business with a sub-Post Office means that the vendor holds a license to operate a sub-Post Office under a franchise-type agreement, but is also in receipt of a monthly payment from the Post Office group/parent.

Maybe the term "sub-Post office", which the OP does not use, is crucial, but you are not correct in all cases.

Some post offices have a lot of PO branding on the shop front and I believe they really are post offices with staff employed by the post office.

The OPs case of a convenience store, with a PO counter, may be the commission model where the operators are paid a few pence per item posted. Our local convenience store/PO operates this way. The most they have ever made was £600 one week last Christmas, normally a LOT less. They rely on it to bring extra footfall into the store. They have unexpectedly closed the PO counter for 3 weeks whilst on holiday as the Post Office wanted £150/day to provide relief staff.

 

[pentel]

£80k value plus stock

says who? probably the seller or one of the several business brokers who come up with high prices to reel in the seller.

Do your own valuation, question every figure you are given. Energy costs may be about to double (or more). Are there any staff who will transfer with the business under tupe. They could be a huge cost... or benefit! Is the lease a benefit or a burden. Is there about to be an increase.

There are numerous ways to value a business. If the seller is so sure of the price and viability of the business then seller financing should be an option. You could even link the price paid into thow well the business performs.

 

[SillyBill]

I don't see how these businesses make money for non-involved owners/investors (not withstanding chipping in at the weekend). That may be a bank's view too; they are not well known to be very profitable affairs as it is.

 

[Alina97]

If you believe your business will make progress and it's not easy for the bank or microfinance institutes to lend you money, just find like minded people make them understand join forces on capital take the risk together.
I believe it's the only way.

 

[Mr D]

Some shops prove to be .... less than profitable.
Factor in wages. Factor in staffing. Ignore what the seller says about potential, if it was viable they'd have done it and increased the price they could sell the business for.
What you are buying is a job. A 12 - 16 hour a day job. You want to work weekends? Fine. What will you do when your friend wants time off for holidays, resting or is ill? What happens when multiple staff are ill?
The shop is open certain times. You (or friend) get to work those times plus more - when do you go to the suppliers? When do you deal with deliveries / unloading the van or car? When do you deal with restocking?
You'll deal with cleaning during quiet times and after shop shuts. Then there's the cashing up, banking etc.
Shoplifting, post office raid, CCTV - all things to deal with.

Oh and if your friend falls out with you or makes unreasonable demands, then what?