Buying a Business? What Lenders Look For
Buying an existing business can be an exciting opportunity, but securing finance requires more than finding a business you like and agreeing on a price.
At Infinance, we encourage prospective buyers to start the finance conversation early. Understanding what lenders look for can help identify potential issues before a purchase gets too far down the track.
The core considerations are generally security, equity, serviceability and working capital. Lenders also need to understand the business — its history, financial performance, position in the market, competition and what impact a change of ownership could have.
A strong application should include supporting information such as historical financial accounts, a business plan and realistic cash-flow forecasts. Buyers should be able to explain their assumptions, what research they have undertaken and how the business will be operated. Ownership structure, guarantors and relevant business or industry experience may also be considered.
Importantly, funding isn't necessarily limited to the traditional banks. Depending on the circumstances, non-bank lenders and specialist finance companies may be able to provide funding where an acquisition doesn't yet meet bank lending criteria. This can potentially help a new owner establish the business, build a trading history and demonstrate sustainable performance, with the funding structure reviewed as the business develops.
Over a recent coffee with Neil Moffat from ANZ Commercial in Taupō, Neil offered some useful advice on buying an established, successful business: consider changing as little as possible during the first 12 months. Customers need time to get to know the new owner, trust needs to develop, and there is value in understanding what has made the business successful before making major changes.
Neil also highlighted resources available through Taupō's economic development agency, Amplify, including start-up mentoring, foot-traffic monitoring and economic information through the Taupō Council economic monitor portal and Infometrics dashboard such as EFTPOS activity.
For anyone considering a business acquisition, our advice is simple: do your homework, understand the numbers and talk to your finance adviser early. At Infinance, we can help explore funding options across banks, non-banks and specialist finance providers to find an approach that fits the business now and as it grows.
For more on the above, click on the link below.