Commercial Mortgage?

ElkyElky

A small established newsagents in my area is up for sale for £55k that I'd love to buy. It's the only newsagents in the immediate area with lots of housing surrounding it. There's no other commercial properties nearby so won't need to worry much about a competing newsagents opening up.

It turns over 6k a week but no idea (yet) how much profit. Obviously if buying in my situation is a possibility then I'd investigate the numbers further but assuming that it makes a decent enough profit then it would essentially pay for itself. My family would be willing to help run the shop and said they wouldn't want paid for their time, at least for 6 months or so.

I have no savings so couldn't pay a deposit for a mortgage however I own a house which is mortgage free worth 180k. Could I use my home as security for obtaining a commercial mortgage? Naturally I'd only do this if buying the newsagents is a safe bet but it is my only asset that I could use for security.

Since I could guarantee the mortgage with my own home, would this make obtaining the mortgage relatively easy or would the bank still want business plans, proposals and whatnot?

I know nothing about commercial mortgages so advice would be greatly appreciated.

ACG

There may be ways of securing a commercial mortgage against the business AND your property. Is it the newsagents thats up for sale as in just the business or the property also?

ElkyElky

ACG wrote: »

There may be ways of securing a commercial mortgage against the business AND your property. Is it the newsagents thats up for sale as in just the business or the property also?

It's the property that's up for sale. Current owner has owned it 14 years and has 1 employed full time staff member so obviously makes a decent profit.

Thrugelmir

What's happening to the business then?

As it stands all you would have is an empty property.

ACG

There will be a couple of different ways to do this i think.

Securing a full 100% mortgage on this will be pretty difficult to do though.

Your probably best sitting down with a mortgage advisor and letting them do the research on this. You could also speak to a specialist commercial broker, they generally charge a higher fee though.

ElkyElky

Thrugelmir wrote: »

What's happening to the business then?

As it stand you would have is an empty property.

I would be able to fit it out pretty quickly so there would be just a few days tops where it won't be earning. I have a cash and carry account and a van already so stock can be bought immediately.

My credit cards could be used for the immediate costs, I could perhaps see about grants or borrow from a family member.

Thrugelmir

ElkyElky wrote: »

I would be able to fit it out pretty quickly so there would be just a few days tops where it won't be earning. I have a cash and carry account and a van already so stock can be bought immediately.

My credit cards could be used for the immediate costs, I could perhaps see about grants or borrow from a family member.

Think you need a business plan before proceeding.

Grants for what and from where? You'll need to fund the business yourself.

ElkyElky

Thrugelmir wrote: »

Think you need a business plan before proceeding.

Grants for what and from where? You'll need to fund the business yourself.

There is quite a few grants and loan schemes for new start ups in Scotland. My local authority has a few schemes to help with initial start up costs. They even pay up to £2250 if you create 1-3 full time jobs within the first 3 years.

I shouldn't need to use any schemes. I'm confident that I can cover the initial costs myself, it's just buying the property I'd need help with.

Alwilb

You may want to consider making it clear to the seller that you're looking to buy the business of which the property is just one part. This is going to depend on whether there's a benefit in acquiring the full range of business assets or not.

You'll presumably have supply contracts with newspapers and possibly arrangements for chiller cabinets and whatnot. You'd want the seller to make sure these are transferred to you or at least give you details of what's currently in place so you can make your own arrangements. I don't know whether you'd have contracts for the supply of stock or just drive down to a cash and carry? Either way you're probably going to want to value stock at completion and take that. There may be goodwill in a trading style/name that you want to continue?

You'll also have TUPE to consider. The current staff member's employment may well be deemed to transfer to you and so you may have a wage there to pay. They may just walk away however and not realise they probably have a right to stay.

Few issues to consider but as business purchases go it's obviously a tiddler.

ElkyElky

Alwilb wrote: »

You may want to consider making it clear to the seller that you're looking to buy the business of which the property is just one part. This is going to depend on whether there's a benefit in acquiring the full range of business assets or not.

You'll presumably have supply contracts with newspapers and possibly arrangements for chiller cabinets and whatnot. You'd want the seller to make sure these are transferred to you or at least give you details of what's currently in place so you can make your own arrangements. I don't know whether you'd have contracts for the supply of stock or just drive down to a cash and carry? Either way you're probably going to want to value stock at completion and take that. There may be goodwill in a trading style/name that you want to continue?

You'll also have TUPE to consider. The current staff member's employment may well be deemed to transfer to you and so you may have a wage there to pay. They may just walk away however and not realise they probably have a right to stay.

Few issues to consider but as business purchases go it's obviously a tiddler.

I'm going to the business advice center tomorrow to find out my options regarding the commercial mortgage, with my lack of deposit. There has got to be a way I can use the equity in my house as security, rather than hard cash. I'll see what they say first before seeking an independent commercial mortgage advisor.

If there's a way I can fund the purchase of the premises then I'll go for an official viewing, discuss all the numbers with the owner and see what assets are included in the sale or even if they can be included for an additional amount.

I've worked with a local shop fitting business previously and having spoke to one of the managers (personal friend), he said he could fit it out with shelving and stuff pretty quickly at a discount. I can fund probably around 15k for the initial costs myself using credit cards and a tiny bit more if I borrow from family but I'd need to know the business will generate enough profit to cover all of the repayments so I'm not at a loss even with personal debt.

I'm not concerned about paying myself or family members a wage in the short term. I'd be throwing all of the profits back on to my personal credit cards to pay them off before I'll consider paying wages.

The contracts for the newspapers comes in at around £500 a week. I would just drive to the cash and carry and get the stock myself which is no bother. I'd need to have bread rolls, freshly baked items, milk etc delivered daily and I'd make sure these contracts were transferred to me on completion so it gives me one less thing to worry about.

I don't know anything about TUPE but I will get Googling. Would there be ways of making the employee leave (as horrible as that is !) on completion? I probably wouldn't be able to afford to pay a full time employee, not whilst I have 15k or whatever of personal credit card debt hanging over me.

Let_Us_See

Take a deep breath and stand still for the moment and come back to priorities. The first thing you need to do is request at least the last three years accounts for the newsagent, which should be available from the selling agent....assuming there is a selling agent? If not available, then ask yourself why? At the moment all you have is "pie in the sky."