Raising finance using property as collateral

[Psc88]

Hi all

I am an optometrist looking to invest in a franchise optician business .

The business is currently profitable with last accounts showing pre tax profit around 30,000.

Also paying the optometrist (which would be myself around 40k) currently paid to locums.

Asking price is around £300,000

I have a mortgage free propert worth around 200,000 and around 40,000 cash to Inject into the sale.

I know the simplest solution would be to sell the property but I would like to keep this long term as I have spent a lot of time work and sweat building it up ( also I would have a large capital gains bill if I sold at this stage).

Renting it I could see around 750-850 a month .

My question is are banks going to look favourably lending to find this business usin the property as security.

I have good credit rating with no loans and currentl living with parents.

 

[Psc88]

Ps sorry for grammatical errors using my new touchscreen which is incredibly frustrating when typing anything more then a short text message!

 

[Energise Accounting]

The person to ask is @PaulThompson however, if the business plan is solid enough I cannot see why not.

 

[PaulThompson]

Thank you for the "nudge" @Energise Accounting

From your brief overview @Psc88 I'm confident that there will be lenders interested, I would need to get "into it" in a bit more detail.

Ideally, to get an understanding of your requirement a telephone conversation is good, I can then work on collating the background information a potential lender would require.

If you have any questions about how we work please ask!!

 

[Psc88]

Hi Paul I would gladly have a chat about the possibilities of you can give me your details .


Just a quick question , my accountant said that rule of thumb most banks will borrow up to 75 percent and limit there exposure to 25 percent. I know this isn't s hard and fast rule .

Does this mean limit there exposure in terms of giving you 25 percent less then what your collateral amounts too or does it mean they will borrow you 25 percent above this

If that makes sense

Thanks

 

[PaulThompson]

It means that if you just want to use the property as security for the business loan then a "typical" bank will take 75% of your property value then deduct your existing mortgage from it (if you had one). This means your £200k house is only usable to the value of £150k.
That's quite a narrow view overall - there are a plethora of lenders working on a different basis and to different rules, some up to 100% of property value, some lenders, especially with this type of purchase, will lend against the lease beyond the security value of the property.
At this point I'd want to have a look at the accounts of the business and your personal financial position to formulate an offer - as we discussed in another thread, it also comes down to the "is it worth it" question!
Hope that helps, my number is 01904 693700 or you can Skype me on paul-acorn

 

[AshteadAlec]

I know it's often the default of posters to say, "you're paying too much" but paying £300k for a 10% per annum return of £30k is quite a multiple considering the risk.

You'd need to be pretty certain that that level of profitability could be kept up.

 

[PaulThompson]

I'd thought that as well but I'm assuming there's a decent lump of property behind this and that it's in a reasonable location... we'll have to wait and see though.

 

[Psc88]

Hi in the optical trade practices are generally valued at half the turnover. The business are different from other retail outlets. Profitability may not look huge at the moment but that's a conservative estimate and there are reasons for the profit being lower then expected namely having a ad hoc director at present, also current director paying a larger wage to himself.

There is room to increase turnover and profits so the business is being bought with light to turning things around.

 

[PaulThompson]

That's great - exactly what I'm looking for when I get the accounts! - can we talk on Monday?


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[AshteadAlec]

I'd thought that as well but I'm assuming there's a decent lump of property behind this and that it's in a reasonable location... we'll have to wait and see though.

Good point - if there is freehold or long leasehold property included then the original poster should mention that as then there will lots of other input and comment on how to structure a deal.

 

[Psc88]

Hi there is no freehold property it is a leased business in a main shopping centre. Franchised with a well known high street opticians. Business does have assets of over 100,000 in terms of testing equipment and medical apparatus .
Thanks

 

[Bob]

So do you have to take on the franchise? Have you looked at the terms of the agreement? Are you happy with the shopping centre lease terms?

 

[Psc88]

Franchise is one of the main selling points in this business , the multiples have around 60 percent of the market share , the support and the media campaigns (although funded through franchise fees) are helping the sector expand.

Lease is currently being negotoated for a rent decrease of around 5-7k per annum with a five year break clause

 

[YouGavel]

So do you have to take on the franchise? Have you looked at the terms of the agreement? Are you happy with the shopping centre lease terms?

I agree with Bob. You must be very careful with these kind of agreements. I used to be in a similar situation "owning" the business and working 50-60 hours/week busting my ass to make it successful and I found it really frustrating to have others getting paid basically for doing nothing. Sure I had some support and beneficiary media campaigns but at the end of the day I could do that maybe with less money than the amounts I was paying them.
I am not saying that you shouldn't go with it don't get me wrong, cos not all agreements are the same..I am just saying think this through, try to imagine where and how you wanna be in the years to come and then decide.

 

[Psc88]

Hi I appreciate the comments . I already own and run my own independent opticians as present which Is funding the new venture . If I took my salary out of the equation and took it as a dividend instead it would automatically bring profit up to 70-80k at the end of the year

 

[YouGavel]

Hi , at the end of the day nobody knows your business better than you. It seems that you have a plan which is good although I didn't understand how you will operate the first shop. All the best !!

 

[Psc88]

My wife is also an optometrist and would run the first shop

 

[PaulThompson]

In view of the above, I'm confident about the finance part - can we talk today at some point?


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