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Finance to buy an existing business

bammers80
Posts: 19 Forumite
Hi, I am after some help and advice with sourcing finance for the purchase of an existing business.
The business is currently on the market for £74,950 which has been reduced from £125,000 since I first enquired about it. There is also the stock which would have to be purchased with the sale which is currently valued at approximately £250,000 (although this could be reduced to about £210,000). The property where the business is located is also for sale for £375,000, however the vendor is happy to rent it to the new business owner.
As you can see it is quite a large sum of money that would be required to purchase the business and current stock. The turnover for the business in the last 5 years has averaged £1.3 million with a very strong net profit year on year.
I have already completed a business plan and approached a couple of high street banks but have not even got through the door with them as I do not have any collateral or assets that I could secure a loan against. I was hoping that I could use the proof of income and also the stock that would be purchased as security against the loan.
I know it's a long shot trying to source the money and is probably a no-go but any advice would be appreciated.
Many Thanks
The business is currently on the market for £74,950 which has been reduced from £125,000 since I first enquired about it. There is also the stock which would have to be purchased with the sale which is currently valued at approximately £250,000 (although this could be reduced to about £210,000). The property where the business is located is also for sale for £375,000, however the vendor is happy to rent it to the new business owner.
As you can see it is quite a large sum of money that would be required to purchase the business and current stock. The turnover for the business in the last 5 years has averaged £1.3 million with a very strong net profit year on year.
I have already completed a business plan and approached a couple of high street banks but have not even got through the door with them as I do not have any collateral or assets that I could secure a loan against. I was hoping that I could use the proof of income and also the stock that would be purchased as security against the loan.
I know it's a long shot trying to source the money and is probably a no-go but any advice would be appreciated.
Many Thanks
0
Comments
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You've no chance getting business finance through the banks if you're not putting a substantial amount of cash in yourself.
A bank won't place any reliance at all on potential future profits nor on stock as neither are secured nor can either be readily turned into cash to repay the debt.
The best you can hope for is debtor financing (factoring etc) to cover customer unpaid invoices and asset financing to cover the equipment used in the business.
Two ways of alternative finance though. Firstly via crowd-funding. Secondly via vendor finance, i.e. where the seller effectively lends you the money, basically meaning you actually pay the asking price over several years (typically monthly) rather than in an up front lump sum. If the seller doesn't actually need a lump of cash, they may well be happy with it in instalments over a few years.0 -
Hi Pennywise, thank you for the reply. I have already asked about seller finance but the vendor is not very keen on the idea, he has been running the business for the last 50 years and just wants to retire and enjoy life and not have to worry about it any more. I have also looked into crowd-funding but most of what I have seen requires you to have owned/run the business yourself for the last 2 years (unless I am looking in the wrong places).0
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If I could raise the £75,000 for the business from family/friends what would the chance be of getting a business loan from a bank to cover the cost of the stock?0
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I doubt it.
Old stock is old for a reason - 'stock' overrepresents the bad-selling lines.0 -
The turnover for the business in the last 5 years has averaged £1.3 million with a very strong net profit year on year..................
....I'm smiling because I have no idea what's going on ...:)
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Hi Errata, the seller has given me a copy of the draft accounts for the last 5 years and that is the average turnover for the period.
When I first enquired about the business the asking price was £125,000 which was then reduced at the beginning of this year to £99,950 and then reduced again yesterday to £74,950. I know he has had some interest in the business but not as much as he had hoped.0 -
Also if sales have continued like they had been since I enquired in November the estimated turnover for the year ending April 2015 would be about £1.5 million.0
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What's the area of business?
Sounds like everyone else has given it a swerve. Flogging £25k's worth of stuff every week for 5 years solid sounds extremely suspicious for a business that's only worth £75k......................I'm smiling because I have no idea what's going on ...:)
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It does sound a bit unusual that the business' value is about a fortnight of turnover.0
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The business is a gunsmiths/gun shop, which is a sport that I am heavily involved in and have been for the past 20 years. I think, due to the specialist nature of the business and the limited appeal to most people, this is the reason the vendor is struggling to sell.0
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