Loan to buy an existing business

Board Topic: BUYING A EXISTING BUISNESS
Click here to view this topic in its original format
LoanUniverse Community > General Chat >

BUYING A EXISTING BUISNESS

Posted by: BAZ Jul 26 2004, 07:21 AM
I WOULD LIKE TO KNOW HOW TO GET A BUISNESS LOAN WITHOUT BUYING THE PREMISESS THE BUISNESS IS A VERY PROFITABLE BODYSHOP THAT I HAVE WORKED IN FOR MANY YEARS.

Posted by: loanuniverse Jul 26 2004, 12:21 PM
Baz:

Buying a business is the same as buying commercial real estate, the lender will take a look at the cash flow from the business as the source of repayment. This means that at one point the seller will have to provide copies of their financial information so that you can go apply for financing. In fact, this is something that you should ask from the seller even before you consider giving a bid.

Revenue and income are not as important as cash flow for the repayment. The lender is also going to want to see a sizable down payment from you and will create what is called a “pro forma” balance sheet and income statement to see how the company will look and perform after the loan is disbursed. You would really need to talk to a lender so that he could walk you through the process.

Off the top of my head, the lender is going to be looking for a couple of numbers from the set of “pro forma” statements. Take into consideration that all lenders have different leverage and debt service requirements so this is at best just an educated guess.

The numbers are:

- A leverage ratio as shown by debt to worth of no more than 3
- A debt service coverage of at least 1.25

In other words “total liabilities” including the proposed loan can not be more than 3 times your equity contribution, and the cash flow from the business should pay the loan’s principal and interest at least 1.25 times.

Good luck
email
This entry was posted in Business Loans and tagged , , . Bookmark the permalink.

Comments are closed.