Applying for a loan to buy a share in a business, advice?

anxiouscharlie

We're looking at obtaining a loan to enable us to buy 50% shares in a small family run food business based in the South West. My sister-in-law would buy the remaining 50% and we would all run it together. I need to obtain the necessary financials (overheads/debt/profit forecast) in order to formulate a business plan, but I am a little worried that as we have no "assets" ourselves (we don't own our own home and the business rents a unit to operate out of), and my income is relatively moderate, we wouldn't have a chance at obtaining the funding. The business is profitable, and would be even more so with our plans for it, although it is small scale. It is obviously risky to do this and get ourselves in debt for but we could have a real shot at a family business. Does anyone have any advice?

[Deleted User]

Without a business case it's impossible to say. But from the doubts you express here and your user name, I'd say buying a business may not be for you.

DCFC79

Just a few questions, more could be asked by other posters.

Are you sure you want to do this ?

Whats the drive behind it ?

Do either 3 of you have any idea how to run a business ?

Are you sure you want to get to mix business and family ?

There could be long hours involved and/or 6/7 day working week, would you be ok with doing that ?

Don't get me wrong the 3 of you could make it work and the profit you mention will happen but based on your post I don't think its for you.

bris

The bank aren't lending you any money without assets for them to hold. You would need about 30-50% cash and the equity for them to hold on any lending they give you. The fact you have a partner involved in the other 50% of the business doesn't help either as it's another obstacle for the bank to contend with should anything go wrong.

It's also a bad time to think about buying a business as the future is anything but settled.

MinuteNoodles

anxiouscharlie said:

We're looking at obtaining a loan to enable us to buy 50% shares in a small family run food business based in the South West. My sister-in-law would buy the remaining 50% and we would all run it together. Does anyone have any advice?

The majority of businesses that fail do so because those people who set them up or bought them knew absolutely nothing about what it was that business was in.
So what do you and your sister in law know about running businesses and in particular in the food supply business sector? Given you're even contemplating it during a time where food supplier businesses have been decimated due to the fact their main customers, the hospitality sector, have been closed suggests little to none and even more so given it's in a part of the country where poverty is high and work and demand is seasonal. How much research have you done into this business? Have you looked at it's last few years accounts which should be the very first thing you do? Or was it a case of "Ooh there's a pasty making business for sale in Cornwall going cheap, wouldn't it be a brilliant idea to buy it? We could all run it together and have a family business."

jonesMUFCforever

The first thing that crossed my mind was if the business is profitable why sell it?

bris

jonesMUFCforever said:

The first thing that crossed my mind was if the business is profitable why sell it?

Usually retirement other having other business interests you want to spend more time with.

There are thousands of profitable businesses sold every year.

But in this current climatr my money would be on the debt that is piling on due to the lockdown, some, probably a lot of businesses will not survive it.

MEM62

I can imagine that most banks could be very cautious in lending connected to small businesses at the moment.  However, you may get lucky.  At a minimum you will a solid & credible business plan and you would normally be expected to put up 50% of the funds yourself. (After all, if you are not prepared to risk your own money why should a lender risk theirs)  You might find that these restrictions have tightened but it will vary from lender to lender.     

anxiouscharlie

Thanks for your comments everyone. My wife and her sister work in the food industry and have done for a few years. They know this business well and have worked with the seller in the past. I would remain a silent partner as I have a full time job although will help out with marketing and social media. My sister in law continues to operate out of the same unit as him as she owns another business too. I agree it is not the best time to be buying a business, but the business has done well throughout the pandemic, operating from a food hub and doing online sales. We have 50% of the money to put up ourselves, but no assets unfortunately. My wife and her sister are certainly willing to put the graft in, at the moment it is a weekly market (one day prep and one market day) but we have plans to hopefully expand. It is a profitable business, the owner is selling it as he had a stroke last year, is finding it difficult physically (lots of lifting and driving) and wants to retire. We are looking at the books soon to get a better idea of what the accounts look like. At the moment he is selling it for £50k but we think it's only worth 40k.  

jonesMUFCforever

If nobody buys it it is worth nothing?
Why not bide your time and get it for next to nothing?
If the person retires without selling or has to due to ill health - what happens then?

Clive_Woody

anxiouscharlie said:

Thanks for your comments everyone. My wife and her sister work in the food industry and have done for a few years. They know this business well and have worked with the seller in the past. I would remain a silent partner as I have a full time job although will help out with marketing and social media. My sister in law continues to operate out of the same unit as him as she owns another business too. I agree it is not the best time to be buying a business, but the business has done well throughout the pandemic, operating from a food hub and doing online sales. We have 50% of the money to put up ourselves, but no assets unfortunately. My wife and her sister are certainly willing to put the graft in, at the moment it is a weekly market (one day prep and one market day) but we have plans to hopefully expand. It is a profitable business, the owner is selling it as he had a stroke last year, is finding it difficult physically (lots of lifting and driving) and wants to retire. We are looking at the books soon to get a better idea of what the accounts look like. At the moment he is selling it for £50k but we think it's only worth 40k.  

What would you be getting for £40 - 50K?

Is it just a business name and book of customers or are there physical business assets included that you could value more easily?