Board Topic: buisness loan what do you need to start
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buisness loan

Posted by: kathleen73 May 6 2004, 01:20 PM
i'm looking into buying a tavern and i was wondering how is the best way to get a buisness loan?
and what if your credit isn't the greatest?
where do i start??????

Posted by: loanuniverse May 6 2004, 03:25 PM
Kathleen:

Good a business loan question! I get a lot of people interested in real estate investment, but few looking for business financing answers.

Let me see if I can help.

First thing, I would like to know is whether or not you are thinking of buying the real estate where the business is located or if you are just buying the business. For simplicity sake, I am going to assume that you are just buying the business. Of course it would be a good idea to check and see if the lease can be assigned without a problem, but that is another story and you came here for financing options feedback.

In your case, the fact that you are buying an existing business will help. This does not mean that you are going to get the loan. It just means that it will be much easier than if you showed up to a lender with an idea and a business plan. The lender will have access to historical financial performance of the business, which will help him make a decision.

My personal opinion regarding the best place to go for this type of financing would be a commercial community bank. The problem is that depending on the amount of money that you are looking to borrow, the purchase price of the business, the cash flow from the business as well as the assets of the business, you might not even qualify for their programs.

So far, I have only mentioned the financial considerations of the transactions. You also have to consider the subjective questions about your experience and your credit history. The ideal candidate in terms of experience for this purchase would be someone that has successfully ran and owned a similar business for several years. The second best would be someone that has managed a similar business for several years.

You asked about how much your credit history is taken into account, and my answer is another question: “What do you mean by a not great credit history?”. Once again we get into different levels. As bankers, we would like all of our personal guarantors to have credit scores over 800 and pristine credit histories. However, this is clearly not the case so allowances are made. If I have to give a “rule of thumb” as to what is considered inadequate for a guarantor to have when it comes to business loans, the number would be 600 and below. Of course, it all depends on the lender. There might be some lenders willing to overlook a 580, but others might not be comfortable with anything less than 650.

This translates into my recommendation to get a credit report on yourself. Get one of those that has a credit score. My preferred reporting agency is Equifax, with TransUnion a close second. I have not found any bank in my area that uses Experian for commercial credits so I would not bother with that one.

Before you go looking for a lender, you should start by doing your own analysis. In order to do this you will need information about the business from the seller. This is an investment and as such should be looked from the point of view of return. Do not go into this thinking “I want to do this and will do anything to make it happen”. The deal has to make sense financially or you might see yourself working 80 hours a week for a bottom line of a couple of hundred dollars. Also remember that the goal is not to get the loan, but to get the business so think creatively as to how to make that happen. {When I say think creatively, I mean doing things such as accessing equity in your personal residence, which would put your house in the line, but is usually a source of cheap funding}

As I finish writing this, I realize how confusing all of it might sound to someone not involved in financing. So I am going to change my recommendation as to what it is that you should do first. I think that you should seek someone such as an accountant to help you understand the financial information that you are going to get from the lender.

Good luck
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