Any help on best way to source funds to buy a business please???

mart_2

Hi all,

This is my situation -

I have the opportunity to buy a very good business from a friend who is retiring and has no family to pass the business on to, so i am getting it for a VERY good rate! (second hand car sales lot in prime location)

HOWEVER,
to raise the funds i need to borrow the money! around 75k!

My house has no equity in it so re-mortgaging isnt an option.

My mum owns her house, would we be able to re-mortage that considering that she is retired so cant fill in any of the 'how much do you earn' bits on a mortgage application??

I'm trying to stear clear of business loans if i can, and seeing as the land that the business is on is leasehold i dont think i could borrow against that??

the other thing to consider is that my credit rating is not great due to problems 3-4 years ago, i have been working on this and it is going in the right direction.

any suggestions on how people would usually fund this type of venture??

hope you can help

best regards

mart

observer_2

I presume that 75k includes the cars to sell ? If so then i would say that you actually rent the car lot from your friend for say a 12 month period. You could split the profits, and this way your friend gets an income for a year and you get a chance to build up a business.

If this isn't a goer and you need 75k then truthfully i'd walk.

WHA

Make sure you take proper professional advice as to whether or not the business really is worth £75k.

What does it include? The cars? Fixtures & Fittings? Goodwill? How is the £75k split into these categories?

What are the terms of the lease - you need security that you can continue to rent the land - make sure there are no clauses allowing the landlord to terminate the lease. At the same time, make sure you are not tied into paying rent with no get-out clause for a long period either.

Have you seen three years of accounts showing a healthy profit? If not, get them and have them looked over by an accountant.

Remember, the business has to make profits of a level enough to pay an equivalent wage for you (i.e. what you could earn elsewhere), PLUS the loan repayments, PLUS a premium for the risks you are taking.

Many small owner-managed businesses are grossly overvalued - a throw back from the old days when "being your own boss" meant something. Another myth is that you should pay more for a business with potential - remember you have to work harded to make the business reach its potential so you want the rewards yourself - not the previous owner who was too lazy or incompetent or lacked resources to do it themselves!

If the business really is worth £75k, the figures stack up, etc., you should be able to get a business loan, but probably only to around 75% of the amount needed. You also need funds for the remaining 25% and also plenty for working capital and contingencies.

If you have no way of raising money yourself, then you do need to be talking to the seller about a phased sale over 1-3 years where you pay monthly instalments. There are many ways this can be structured - it can be a simple loan, you can both become partners with your shares varying over time, or you can become shareholders (if a company) again with shareholdings transferred as time passes.

motorguy

WHA wrote:

If you have no way of raising money yourself, then you do need to be talking to the seller about a phased sale over 1-3 years where you pay monthly instalments. There are many ways this can be structured - it can be a simple loan, you can both become partners with your shares varying over time, or you can become shareholders (if a company) again with shareholdings transferred as time passes.

Yes, exactly what i was thinking. Borrow part of the money off the seller. if he believes the business really is a goer then he won't have much of a problem doing that...

motorguy

Also, what are you actually buying for your 75k? How did he come up with that figure? If its stock you are buying there are some finance companies who specialise in car dealerships, and basically lend you the money against the value of the stock