Business loan question

Baking_Mad

Hi all,

Just a general question regarding business loans. Can anyone please explain how these work and how difficult are they to obtain at present?

We are presently working on business plan which I believe is one of requirements for the loan application. However, we do not own a property and wondering if banks would even consider lending with no security over property? Would it be possible, for instance, to make a part down payment to secure the loan in these circumstances?

P.S. The loan would be for the purchase of existing and well established business with current accounts available.

Thanks in advance.

paddyrg

The banks will want security of some sort - that's what they do. The security may not be property, but secured against your personal savings, maybe even against stock or future contracts. Failing that, is there someone who would act as a loan guarantor? Or a sleeping partner in the business who you can buy out at (say) 20%/year? It'll depend enormously on the amount, your assets, the business, etc - have you tried asking them yet?

Baking_Mad

paddyrg wrote: »

The banks will want security of some sort - that's what they do. The security may not be property, but secured against your personal savings, maybe even against stock or future contracts. Failing that, is there someone who would act as a loan guarantor? Or a sleeping partner in the business who you can buy out at (say) 20%/year? It'll depend enormously on the amount, your assets, the business, etc - have you tried asking them yet?

Thanks for that. No, I've not approached any of the banks yet. Would the present owner be allowed to be a loan guarantor (provided, of course he agrees to do it:o) ?

I would be operating as a sole trader with my OH continuing in his full time employment. Can his income be taken as security?

Otherwise, no major savings at present and no assets...

Baking_Mad

Also wondering what your thoughts are on the likes of Funding Circle and Zopa? Is it worth trying to get finance through these?

colino

You have to give a bit more info on the size of the loan, the type of business (especially the assets it will have/use) and the strength of the accounts of the current business you are buying into. Unless it is a minor loan, banks unlikely to be interested in a sole trader and even if/when you go limited, they often ask for directors personal guarantees anyway!

paddyrg

If the current owner would be prepared to do it, that would certainly be a great way to buy out the business (and it's actually not unusual). You needn't get the banks involved so much that way - you agree a payment plan direct with the owner for slowly buying partial towards full ownership. Even better, they stay involved which means they are interested in a smooth handover, working with you during the transition, etc.

You can even come up with any funky combination of ownership/money/time as suits both parties - for instance you could agree say 51% ownership (or what you can afford) bought now and then but the rest out of your half of profits over 5 years or whatever. Or after 5 years have an option to buy the other 49% at current/current + interest/then valuation/whatever or walk away. You can get creative - just get a good legal opinion on any schemes so you don't stitch yourselves up.

Funding Circle, Ratesetter, Zopa - well the rates are dirt cheap right now, so yes why not look at them? Quantitative Easing means the banks have been given cheap money to play with, which means they don't need savers money, so are paying derisory interest rates. People seeking a better rate are lending through those peer lenders (often at commercially insane rates as they're not considering the default rate. Ratesetter rolling monthly rates are around 1.5% whereas Lloyds pay 3% on a Vantage account), so there are certainly bargains to be had.

Baking_Mad

Thank you so much for all the info, certainly gives me a lot of food for thought.