Financing buying into a business.

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SteveR359
SteveR359 Posts: 1 Newbie
in Loans
Hi all, my first post is a question - hope this is ok!

I may have an opportunity to buy an equal share (with 5 other shareholders) in a business. The business is one I know well as I am its business manager and I consider it to be a relatively low risk inestment with good returns.

I need about £80k to do this and I would immediately be getting monthly dividends that I believe, after tax, would pay off the loan that I need in a reasonable time frame.

My question is, where/who should I look to get this financing? I do own my house and have enough equity in it to cover the 80k but my current lender won't extend my mortgage for this specific reason which is fair enough.

This is the first time I have done something like this so some rough pointers would be very helpful

Many thanks
Steve

Comments

  • Arleen
    Arleen Posts: 1,164 Forumite
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    If you can't get another mortgage (not smart anyway) and don't have spare 80k then you don't get that loan and pass on the opportunity.
  • jonesMUFCforever
    jonesMUFCforever Posts: 28,898 Forumite
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    Lots of things crossed my mind such as why are the present owners selling rather than letting you run as now but with a profit sharing scheme?
    Are all the other shareholders putting in the same amount?
    Have you worked out who will be doing what if you proceed?

    Last question for now - as business manager have you actually seen the balance sheet for at least the last 3 years?
    Do they show an increasing or decreasing balance in the Capital account?
  • Malthusian
    Malthusian Posts: 10,938 Forumite
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    Can you borrow the money from the business or the other shareholders?

    If the loan will be paid back from the dividend income and the business is performing well and the dividends are secure as you say they are, then they know you are good for it.

    If the business collapses meaning you have no job and owe £80k, how will you pay it back?
  • MEM62
    MEM62 Posts: 4,752 Forumite
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    Malthusian wrote: »
    Can you borrow the money from the business or the other shareholders?

    You cannot borrow or take money from a business in order to buy it.

    If the OP does not have access to £80K or knows someone with £80K that they are prepared to risk on the OP then this is a non-starter.

    And I wish I had a fiver for every investment someone has tried to convince me is 'low risk with good returns'. This is almost always wishful thinking or naivety as such things rarely, if ever, exist.
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    First Anniversary Name Dropper First Post I've been Money Tipped!
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    You might and I stress might if you can finance 40k and get a decent business plan together approach your bank for a business loan. Is this a management buy-out? If so where are the other 4 getting their money from?
  • DCFC79
    DCFC79 Posts: 40,598 Forumite
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    It could end up going all Pete Tong when 1 (or the OP) of the other shareholders wants out and none of the other share holders has the money to buy them out.
  • ViolaLass
    ViolaLass Posts: 5,764 Forumite
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    DCFC79 wrote: »
    It could end up going all Pete Tong when 1 (or the OP) of the other shareholders wants out and none of the other share holders has the money to buy them out.

    Surely that could be said of any business but they can't all be a terrible deal.
  • forgotmyname
    forgotmyname Posts: 32,552 Forumite
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    ViolaLass wrote: »
    Surely that could be said of any business but they can't all be a terrible deal.


    True, not all will be a terrible choice. But MANY will be a terrible choice especially when someone does not have the cash spare doing nothing.

    I wonder what is stopping one or more of them thinking, why pay 400k for the business when for a lot less they could just start up an identical one?
    They already have the inside knowledge.
    Censorship Reigns Supreme in Troll City...

  • Arleen
    Arleen Posts: 1,164 Forumite
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    forgotmyname wrote: »
    True, not all will be a terrible choice. But MANY will be a terrible choice especially when someone does not have the cash spare doing nothing.

    I wonder what is stopping one or more of them thinking, why pay 400k for the business when for a lot less they could just start up an identical one?
    They already have the inside knowledge.
    Because they know that starting a business is a hard labor, but usully think that part ownership is easy sailing. It's absolutely not true, but what can you do?
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