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Ooo, so many questions.
First, buying a franchise is easier than starting a new business from scratch. Very few Banks will lend to a new business, while buying a franchise is easier as there are solid cashflow estimates etc available.
Second, even buying a business most Banks are going to want bricks and mortar security (either commercial or residential). So, it will impact on your ability to purchase IPs because of the reduced equity.
Third, most Bank’s will rely on business income after 12 months of trading. In terms of buying the business then an IP, you will almost definitely have to wait the 12 months. There are of course expections, but not many.
Fourth, any Bank will use whatever income is available to them, because Bank’s are in the business of lending money. So if you have the new franchise and your current employment running concurrently, the Bank will use both income streams to prove serviceability. If you leave your current employment because the franchise is paying off, then obviously answer 3 applies. You’ll need 12 months trading.
I hope that helps.
Originally posted by terryw:Its very hard to get finance for a business.
I also just do not agree with this statement at all. It is in fact not ‘very hard’ to get finance for a business, especially an established one. In fact it is sometimes ‘very hard’ to go to a residential lender and say, “I’m self employed and need to borrow money to expand my business.” or “I’m currently employed. I wan tot leave my job and buy an established business.” They are likely to say, “Why are you leaving your job?”
While they might eventually do it, it is probably going to take forever while the Bankers sort out who has the appropriate delegation to approve the finance.
Go to a business bamnking department. You’ll be dealing with people who know what you need to succeed in the business, and will be able to provide you with the support and advice you need.
Originally posted by terryw:Its very hard to get finance for a business. If you have equity, then the easiest option is to simply get a LOC for ‘future investment purposes’, then buy your business with this.
While that’s sometimes a good option, I don’t agree that it is always the ‘best’ option. Also, if you are going to leave your job to take on the new business, you may face problems here (few residential lenders will rely on unproven income, short of the obiquitous ‘low doc’ loan).
Yes, the Bank will consider the established income stream from the business you are purchasing.
They will however also look at your ability to continue operating the business. They will want to know if the vendor will be opening a new buisness in competition, and therefore be likely to shark some of your market. Also, is the business in a volatile industry, and therefore how reliable are the future income forecasts.
Business finance is a lot more complicated than home loan finance because it relies more on the future prospects of the business, rather than the historical. I know that sounds a bit round-about, but what it means is the Bank uses historical information to predict the future risk to the Bank.
It is also more expensive to establish, and the rates are higher, even with residential property as security. However, the benefit is that you are generally dealing with a lending manager who knows about the industry you are buying into, who will be able to turn the deal around much quicker than a residential manager, and who works in a department that is designed to assist business owners, i.e. you will get better service.
And why shouldn’t they. You have just said to them, “I am no longer your customer”. Can you blame Banks if they tend to focus their attentions on people who ARE their customers. <— me being the devil’s advocate.
I work at a Bank and as a rule we tend to frown on that sort of thing. However, that being said if you can afford the two loans, anything is possible. Some Banks do have policy that prohibits it though.
You’re 20k is enough to pay the 5% limit extension fee on a st george no deposit loan, but you’ve got no way of meeting the other settlement costs (stamp duty etc).
So I don’t know.
Yeah, it sounds like it could be the location of the property that’s causing the problem, because BankWest, St George and Bendigo Bank (the three Bank’s I’ve worked for) would all do that as long as the other lending criteria was met.
My biggest concern for you is that you’re casually employed, and only been the 5 months. Those three Banks would probably all kick back as a result of that. You’d need to be able to mitigate that risk at the interview.
I can’t understand why they aren’t offering to match the IP rate you have with them. Tell them you wnt to 6.47% to apply to all your variable borrowings.
That’s a good rate.
