Banks and Business Sales

Love them or hate them, banks play a vital role in a business sale and you must work with them to achieve the outcome desired by all parties.

Often when banks become a topic of conversation in general business banter or at a BBQ you often get a mixed range of responses. But love them or hate them, banks play a vital role in a business sale and you must work with them to achieve the outcome desired by all parties.

When looking at offering a business for sale to the market, one of the things in the back of the brokers mind will be “How will a bank view this business and is it likely to be something that they will lend on."

The reality is that over 90% of all business sales are subject to some sort of finance from a bank. Even buyers who are in a very strong financial position and who might not need to borrow in order to complete a purchase will often seek finance from a bank as the interest on a business is tax deductible.  Most financial advisors will tell buyers that it is better to have as much debt against the business as possible and pay off other non deductible loans first.

A good business broker will prepare all the business information in a professional manner which is clear and transparent in order to meet the requirements of a lender.

So what does a bank look at when they are assessing? 
 

• The likely profits that are sustainable by the business in the future and does the business have the ability to be able to repay a loan after the new owner takes a wage for their personal living expenses.
• Length of lease term- a business loan will usually run for the same time period that remains on the business premises lease. This means the longer the lease, the more attractive the business will be to a bank to lend on.
• The length of time that it will take for a loan to be repaid- A shorter loan period means less risk for the bank.
• Banks will also look at the suitability of a buyer and if they have the right skillset to run the business successfully
• The tangible assets in the business and can the bank use them as security.
• The working capital requirements and stock holdings of the business. If a business has a high stock value and needs large amounts of working capital, it can affect the amount that they will loan. 

A bank obviously won’t look at any cash takings or if the business has had a brilliant year that seems to be a one off.

If your looking to get a business loan, using a specialist finance broker with experience in dealing with business banks will also be a huge advantage in preparing a buyers application and getting finance approved.

If you have any specific questions, or want some more information on the business sales market please  feel free to contact Michael on michael@primebusinesssales.com.au