Obtaining Finance For A Business?

Commercial lending is very similar to residential lending, with only a few pitt falls to avoid + a few tricks to execute.
In fact, a few lenders uses the SAME form or similar form for the commercial and residential lending.

Main differences: Points the lender will look at;

1. Rate is higher – starts around 8.5% variable ( not intro)
2. Rental income is accepted at a certain % and it’s case by case …depending on the business your buying.
– example-
– Rental income from a shop front ( currently a bakery) – will take around 70% of rental
– Rental income from a Office ( currently rented to a accountant) located in CBD – wil take up to 90% of rental
– Empty shop front- will take 30% of potential rental

The trick here is HOW you PRESENT the loan, very important.

3. The security on offer; if your willing to use a residential property as 2nd security then rate would drop close to residential rate ( 7.15-7.8%)

4. Lease term- How many more years are left on the lease and what sort of lease is it.

5. Zoning – what uses does this property have?? can it be a car-workshop etc…
Normally Mixed zones are the simplest to approve.

6. Experiences. Depending how big the loan and deal is…the bank may only lend if your have experience or some sort of banking ( strong financial) for commercial deals. – But in your case, since the loan is under $500k this is not going to be a problem.

In term of deposit; LVR must be under 80%, preferred to be under 65% LVR ….UNLESS you have another security for the lender to fall back on; can even be a 2nd mortgage ( ie no need to refinance to them)

Regards
Michael

If the income from rental supports the loan without your income…then yes the bank is MORE then fine….even if you need to fork out a bit from your pocket it’s also fine (of course depending on your overall financials)

Going to a broker or Bank direct is a personal choose, it depends how confident you are dealing with the bank etc…some commercial brokers do not charge a fee some do ( our firm is free for both commercial and residential).
Which bank ? not a simple answer ….have to look at your overal financial, credit file + what and where you are buying.

Regards
Michael

Sash, you sound like you are one of those young successful big thinker, it is good to hear that.

do you mind if I ask what do you actually do ? because 120k pa is a lot of income for 22 years old….

Sorry no straight answer here….Because LVR is based on property type ( see my previous post) + The business income + your overall financial…if you have strong serviceability and good history bank are willing to take a higher risk and go for a higher LVR etc.

I gotten a Shop front in Parramatta Road Glebe approved at 90% LVR ( self insured policy) …another client who bought something similar on the same road was only able to get 75%.

If your serious about commercial, instead of stabbing in the dark – i suggest you obtain a pre-approval so you know how the bank view YOUR proposal and strength.

Regards
Michael

 
 
I run my own business, have my own niche market, and use it as my vehicle that drives my personal wealth creation.  I started my company at age 23 from scratch, so you are in the exact same place I was 5 years ago.  It is great to see young people with vision to run business, but I cant stress enough to fully understand what you (may) get yourself into!!!

Running a business has its own inherent degree of risk which should be thoroughly investigated and due dilligence should be carried out, especially buying an already established business. 

From my experiences (and expanding further from Shape's comments), more mainstream businesses (franchises for example) which have modelled training and proven recepies for success are a more safer bet, but generally profits get taxed within the franchise (royalties etc), and thier locations (shopping centres) attract higher lease terms.

Businesses that have staff are more challenging.  Right from management down to the floor sweeper, you will have staff issues until the cows come home.  Big things, small petty <moderator: delete language>, pay advances, bickering, and just pure no common sense to name a few.  The more staff, the more you will put up with if you are the direct port of call for the business.  When you get a great team together, do whatever you can to keep them, as they are more valuable to keep the business ticking over than holding onto dead wood!

Starting a business from scratch is hard, and I liken it to being 'on commission'.  You gotta put the hard yards in, and what you put in is what you get out of it.  Starting from scratch is very rewarding (well it was for me), and watching what you created grow is very satifying!  I had reached my 10year goal at about the 3rd year, so I had to rehash my goals, but there is the new drive to land that big contract, or a highly profitable job that keeps you going and keeping you on edge!

I would say that a business run under absentee management that is highly profitable would have a serious premium price attached to it, again getting back to due dilligence on your behalf, or why would someone be wanting to sell?

pinkboy