There are a number of different risks that could be involved in a business purchase and it is going to depend on the business and the industry. They are probably more specific to an application.
An important one to bear in mind is a ‘lease’ sort of business. If you’re buying a business with a lease, it’s important to understand the terms of that lease; how much the rent is, what’s the expiry of the lease, is there a bank guarantee that you’re going to be required to put up for a rental bond under that lease? Because, that will add to your funding requirement. Who is the landlord, if you get a chance to meet the landlord, that would be ideal because a good or bad relationship with a landlord can have a good or bad impact on your business as well, depending on the type of business.
If you’ve got a three-year lease in place on the business you’re buying, the bank is going to look at a loan term that lines with that three years. A short lease also means a short loan, which could then increase your loan repayments.
There may be a chance when you’re buying the business to renegotiate the terms of that lease, but certainly understanding the lease terms, because technically once the lease ends, you may not then have an ability to run your business so it is something to certainly understand as part of your due diligence process is the lease that’s in place.
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