Raising Finance for an existing business

Earlyadopter

Hi All

There are some similar threads / questions on this, but none seem to give a clear answer.

I have just lost my job - I have been employed in various positions for the past 25 years, all within retail. My wife and I own our own home.

We want to buy a local health-food store, which has been advertised, and have looked at the historical P&L and cash flow. On its own, it appears to provide a reasonable monthly net profit - certainly enough to provide a monthly income slightly higher than my last role. We feel we can really bring some new ideas into the business, and the web site is very basic, none-transactional, which again we feel we can make a decent viable monthly profit from.

What I want to ask is how much can I reasonably expect to borrow from the banks, if we put up our home as security for the loan? Our savings have nearly gone from sustaining us while I have been out of work, but we have an excellent credit record and have never been refused credit or a loan before.

Out start-up costs, for the business goodwill, lease and stock are estimated at £90,000. If we use our home for security, would it be reasonable to expect the bank loan to finance 70% whilst we finance the remaining 30% through a remortgage? Or would the bank put up 100% if we were using our home as security anyway?

Thanks in advance.
EarlyAdopter

steve1980

Personally I think the most you get is 50%. It may well be cheaper to remortgage your home for the whole amount.

Before you bite the bullet have you had the accounts looked at by someone? What is the net profit in the accounts? How much is stock at the moment?

Earlyadopter

Hi, the last two years net (before depreciation & amortisation) are £36,890 and £33,445. Current stock is 31K but I only want to buy around 20k as I can see there is cash tied up in short-dated stock / slow moving lines. I know a lot about the accounts from my years in retail, but my next step would be to go to an accountant. I just want to be sure about how much to ask the bank for before I take the next step.
Regards
EarlyAdopter

steve1980

Every bank is different so it's impossible to say how much you'll get.

I assume the business is up for circa £60k. Getting rid of £11k stock is going to be difficult. The one thing is that the net has reduced in the last two years. Why has this happened?

Acc72

steve1980 wrote: »

The one thing is that the net has reduced in the last two years. Why has this happened?

I would also want to see the detailed books for the last 5 years to get some meaningful trends.

eg. were they making £100k NP 5 years ago and business has decreased year on year?, or was NP £5k 5 years ago and there may be some window dressing in the latest figures (as the owners planned to sell the business and want to make it as attractive as possible).

At the moment, you are in an enviable position in that you own your own home and (I assume) little debt.

Have you not considered starting a business that does not require £90k start up costs ?

You may be able to borrow the money but you will have to pay it back, and risk your home if you cannot do this.

Earlyadopter

Hi, the NP is increasing 33 to 36.8, sorry my way of writing. I have seen the last four years of the accounts, and three years ago trade took a jump of around 40% YOY - they brought in some new ranges and did more advertising, so I am happy the baseline is sound, despite the recession. We could start a business without investment, but this unit is right in the town centre of a very busy market town, and depute being small, there is so much we could do with it. The lease is due for renewal in 6 years, but it is likely the owner would renew, and the rent is very low for the location. With a proper website, we have worked out we could grow the trade around 30% more in the next thee years, providing a good income.

We wanted a loan to be paid off in 7 years - my calculations would estimate this to be repayments of around 900 per month, which our business plan accounts for. We just didn't want to get everything prepared, meet the bank and be told they wouldn't finance it. I have been advised banks will generally finance up to 100% leasehold if there is some security - in this case, our home. We don't have significant savings, so the only way to do it would be through a loan, or a remortgage.
Regards
Earlyadopter

steve1980

No chance on the 100% even with security.