We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar and we asked the question, “Will the banks loan 100% of the purchase price? Or do they still look for that particular?”
Here’s what he said –
In general, a bank won’t go to 100%. However, if you had security outside of that, a residential property that was free of any debt and you put that property in as a security, then the bank would entertain that transaction up to 100%.
If it was just buying a business with security over the business and a director’s guarantee without any sort of other property or security behind it, it would be very hard to get a hundred percent finance for a business, even a residential property, bank’s going to look for a 20% deposit and that is a bricks and mortar asset. As a general rule, you will need to have some contribution there.
The other issue with funding 100% of the business is the amount of debt the business is carrying. The more debt that you are carrying in the business, the more the cashflow is going to be tested, or required to cover a loan repayment. Putting some cash in also gives you equity in that business. It also reduces the debt level and reduces the stress on a cash flow especially as a new owner, you might be sort of trading up or building up the business. 100% finance on day one can’t test the cash flow so there are a number of things to think about when we look at how much the business is going to borrow.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
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