Obtaining a Business Loan to buy an existing Biz

steve1980

marc_ob wrote: »

My credit is bad insofar as I've been defaulted 3 times in the past for student overdrafts (oh the regret!) and the payment arrangements on the remaining balances are still being paid at present.

If you have 3 defaults then you don't stand a chance.

paulwf

marc_ob wrote: »

OK, so I've managed to secure 1/3 of the funding.

Would the bank consider my application for a business loan if I have bad credit?

The business is very strong, and I have the ability to convey this in my business plan and it will show in the financial projections.



My credit is bad insofar as I've been defaulted 3 times in the past for student overdrafts (oh the regret!) and the payment arrangements on the remaining balances are still being paid at present.


Thanks again peeps!

Businesses generally don't generate a profit for quite a while - even though this is an existing business chances are it hasn't received any serious investment for a while and will need an injection of capital. Borrowing more money whilst you still have debt means you will then have to service two loans will make life difficult for you.

Other opportunities will come along, this isn't the only catering business out there. Why don't you spend a year or two getting your loans cleared and getting yor credit rating improved and build up some capital? Use that time to lean everything you can about owning a business - finance, marketing, employing staff etc - then go for it? I can't see the point of rushing into it when you will be risking so much money.

Pennywise

marc_ob wrote: »

It's a complicated situation that has arisen which means I'm being offered the business at far below what it is worth.

Who told you that? I've just been involved with the sale of a small catering business with turnover of just under the £70k VAT threshold and they struggled to get more than £10k for it because the net profits were too low and barely paid the owner more than minimum wage, so they'd have been better off stacking shelves in Asda. As an example:-

Turnover £60k
Profit 50% as you say £30k
Less owners realistic full time wage and risk premium £25k (say average UK wage)
Leaves £5k less bank interest on say £20k loan is say £1k-£2k, leaves net profit of £3k. On those figures, goodwill is worthless.

What is the realisable value of the equipment, i.e. how much would you get for it if you wanted to sell it - will be less than half the purchase price, maybe even less. If the current owner paid £20k for it, then you should be paying only £5k-£10k depending on it's age etc.

So. I'd say the business is worth more like £10k tops rather than £25k they're wanting.

You don't pay over the odds for its potential either - if you're going to work and invest to increase profit and turnover, then you want 100% of the benefit and the seller who's not doing anything deserves nothing for future growth.

Given the figures, the bank won't talk to you even if you had a good credit history and 33% cash to put down - it won't pass scrutiny when they evaluate its worth.