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mattpro
06-24-2015, 01:29 AM
Greetings, fellow businessers! :) I am new to this forum and already it has been a wealth of information!

I'm still somewhat new to the small business world and I would love some advice. My boss is getting ready to retire I have an opportunity to buy the small tech business I currently work for. The actual cost of buying the business will be financed through the current owner, but the owner want's to see that my business partner and I can secure the necessary line(s) of credit to operate the business (to handle cashflow fluctuations and carrying customers on net terms) before we can proceed. The target is a minimum of $200K available credit -- ideally $300K.

My question is this: What would be a reasonable way to go about this? I understand that this credit is critical to successfully operating this business, but how can I go about getting that much credit to operate a business when I don't have any legal ownership of the business? Is this a common expectation when acquiring a small business?

I have already tried talking to two banks, one national and one local, but they have been vague and very slow to respond. Mostly I want to make sure I have realistic expectations going into this since I don't really have a point of reference currently.

Thank you in advance for your help!

Fulcrum
06-24-2015, 08:23 AM
Getting that much credit is going to be hard to get unless you have a lot of high dollar collateral and can prove that you have the ability to pay it off.

From my own experience, banks are not willing to extend any credit to my business (aside from a useless $500 credit card). This extends to machine financing, mortgages, operating lines, and overdraft.

mattpro
06-24-2015, 09:53 PM
Getting that much credit is going to be hard to get unless you have a lot of high dollar collateral and can prove that you have the ability to pay it off.

From my own experience, banks are not willing to extend any credit to my business (aside from a useless $500 credit card). This extends to machine financing, mortgages, operating lines, and overdraft.

Thanks for the reply, Fulcrum. I am starting to realize that that much credit is going to be pretty unreasonable out of the gate.

Freelancier
06-25-2015, 07:34 AM
Unless the business has large assets, like a manufacturing plant for example, banks are going to be slow to get involved with helping you manage your cash flow. You might be able to get that kind of funding from angels, but they might also want a piece of the business.

I'd say you have to look at the business and figure out if there's a way to manage it without the loans initially or through selling your invoices.

Business Attorney
06-25-2015, 04:26 PM
A bank, or more likely a commercial finance company, will finance receivables that the business owns, not just hard assets.

If the business has $300-400K in current receivables and your business partner and you have no negative marks against your credit (because almost all will want a personal guaranty in addition to a lien on the receivables), then you may be able to get a line of credit. Finance companies charge higher rates than banks but they are more likely to be willing to extend the credit you need.

It's pretty safe to say, however, that no one is going to give a service business a line of credit without rock solid collateral and probably personal guaranties.

nayteclix
07-31-2015, 04:48 PM
Sounds like you need to restructure the sell. A business can get significant credit lines depending on its cash flow, but you will want to have bought the owner out first. I'd see if he will finance part of the sell and have a lender finance the rest.

PatriciaTaylor
08-05-2015, 12:10 PM
Banks can be a bit unyielding when it comes to large loans. However, there are business lenders that can appropriate anywhere from $10k - $500k in funding if the owner has good credit.

PJHebda
08-05-2015, 07:27 PM
banks are being vague because right now they don't see you as serious candidate to borrow . . . you are not yet the biz owner, will you have to buy it from the retiring owner cash to him? Banks will usually really only lend money, a small biz loan to someone who is incorporated and has business credit , corporate credit history to some degree, like your company having net 30 days accounts, using them, paying it back, agn & agn . . showing a history of your company (not his) using credit wisely for whatever you are purchasing for the biz (supplies, advertising, etc.) . This is like having a 'resume' to qualify for a business loan.
PJH

hnavia
08-19-2015, 11:07 AM
As stated in previous comments, it is a high amount to raise without collateral and other guarantees for the lender. Your best bet at this, if you still need it, is to raise it through various sources, and try to negotiate with the current owner a cheaper alternative, probably by proposing cutting a lot of costs.
Should you opt to raise it from various sources, there are many alternative small business funding options available, and some reputable ones do require some basic credit info from the borrower. This way, you may be able to raise $20k-$50k, depending on your credit profile, the business' cash flow, and other assets such as accounts receivables, purchase orders, etc. These entities raise through various local/national financial institutions, and their own connections, and they will put you in a position to build a good relationship with these. Time to receive funds depends on how quickly all the paperwork is handed, really, and it may be more than desired if you need to go though a brief credit repair program for them to raise these funds. Usually, 2 weeks to a month, and it may take 3-6 months if you need to build up your credit with them.<removed>

Paul
11-04-2015, 05:26 PM
A bank, or more likely a commercial finance company, will finance receivables that the business owns, not just hard assets.
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Also, depending on the creditworthiness of your customers you can "factor" acounts. This is similar to financing receivables except that it is based on each individual customer credit, not yours. The factoring company actually collects the payments from your customers, they act as your receivables department.This may work if your customers are larger creditworthy types.

kimoonyx
11-09-2015, 04:36 PM
Again... I followed a pretty simplistic formula to establishing business credit. To reach the ability to have access large business credit lines... I have found that need to have pretty much established that you can cycle each month paying off large balances of business only accounts , use separate business accounts- I started mine with Wells fargo business card, checking, and merch services which all were admittedly connected to my social but also the EIN... then a net 30 supplier for store fixtures, and staples commercial credit. They both utilized a DUNS number and FED EIN to set me up...No Social... The importance of this is that once you establish this business backed credit... your personal credit score become a separate entity and one of the biggest hold ups with banks is seeing a blending of the two. It makes you "small time" in their eyes... truth. I did roughly 7 grand in fixtures and 400 in office supplies a month for the first year of my business... paid both accounts off and now have lines with sallie mae, bank of america, wells fargo, amex, Wex Fleet, sunoco suntrack, and american airlines. All Business backed I leverage debt often to add to my business... I did start "small" in terms of my credit accounts but it seemed to grow in no time at all. Just pay off everything every 30 days and when you hit a slow period... adjust your spending quick to avoid having balances you cant cycle out of, and you will grow to be able to get your hands on some significant credit lines. Do some small transactions, the right way... and banks will take you seriously. Nothing has "dried up"