Almost every M&A deal involves some element of financing. There are many ways a buyer may raise the needed capital. Each is accompanied by a variety of pros and cons.
Of course, personal assets can be part of the equation, whether you have sufficient cash on hand or you’re able to use assets like your home or other property as equity for a loan.
In some cases, family members may be willing to provide financial support as well. In addition, the seller is often willing to provide financing to get the deal across the finish line.
Traditional bank financing is also an option. Banks have commercial lenders who are dedicated to working with companies. They can help you through the process.
Buyers may find some assistance. This usually comes in the form of a loan guarantee, which raises your likelihood of successfully obtaining a traditional bank loan.
Why? It provides assurance of payment in case of default. With our assistance, we can help you explore loans, grants, and financing options or assist with preparing loan packages and analyzing financials.
If you are looking to buy a business there are a number of finance options available that should be considered. Most banks and lenders in Australia offer a variety of loans including secured and unsecured loans. These tend to require a minimum of 12 months trading of the business and good cashflow. As with most business sales, the securing of a loan can be time consuming but is necessary if you don’t have finance available to buy the business.
Secured small business loans
There are many banks and financial institutions that offer small business loans. Though criteria is getting tighter. Most of the small business loans are secured against the assets of the business. So if you are buying a small business, you will need to know what equipment, assets or property (if freehold) that the business has of value. As you are buying the business, the banks may also assess your ability as an individual to successfully run the business (i.e. do you have hospitality experience if buying a café). In order for the bank to process a small business loan, they need to know about the business. Usually you cannot take out a small business loan without the businesses financials, a business plan, what security you can provide for the loan etc. It is common for buyers to use this path when buying a business. It has also been stressful for many sellers, who wait the weeks for the loan to come through, only to find the buyer ‘couldn’t get approval’ and they cant sell the business. So whilst this is one of the most popular methods, it does take time and you need to have a good understanding of the business your buying.
Unsecured or line of credit
Recently, Australia instituted unsecured business loans. This allows business owners to borrow money from a lender that is not associated with any assets. According to Aussie Home Loans, this is usually a better option for businesses that have a high cash flow, usually from a service business rather then one with a high amount of equipment or assets. With an unsecured loan it is based on the cash flow of the business, and there usually needs to be 12 months worth of trading as a minimum, a good credit rating and consistent good cashflow. Obviously you will need the figures from the business you intend to buy, before you could apply for this type of loan.
Save Save Save
Depending on the business you are looking to buy, you may be able to save the capital. If you’re a hair dresser wanting to run their own salon, this goal is achievable. There are beauty salons on the market for under $50,000. If you open an online saver account, such as the BankWest Hero saver which currently has 2.65% interest as long as you deposit $200 a month… You could look to save enough money within 2 years to buy your own salon. If your looking at construction business or something greater then $100,000+ then you may need to look at alternate financing options, though having a deposit will always work in your favor with the lenders.