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jake0910
03-25-2016, 01:10 PM
Hello

My partner and I have found an existing business, specifically a multi-unit food franchise that's consistently been ranked as one of the fastest growing (think Dunkin Donuts, Jimmy Johns, Subway) listed for sale at $1.6MM. There are 4 units total and each has a positive cash flow, with a total owner's net profit of $440k. There is also a general manager in each unit so the business is almost passive. We're currently doing our due diligence and will meet with an accountant and business attorney to determine the health of each unit. If we determine that the business is doing well, then we will purchase it with a 20 percent down payment (160k per person). And from there our main goal will be to improve sales and help the business grow as much as possible.

The loan amount will be $1,280,000, and will be spread out over 10 years. But the problem lies under how we will get the loan (we're interested in either SBA or conventional loans). I have very little assets to use as collateral; specifically, I have $100k equity in a real estate property, a net worth of $450k (this includes the $160k down payment), and my annual income from my full time job is $170k. My partner has $50k equity in real estate, a net worth of $250k (includes the $160k down payment), and makes $150k annually from his full time job.

What are our chances of acquiring the loan? Any advice on how to get the loan?

Thank you

Harold Mansfield
03-25-2016, 01:19 PM
I love seeing that you're coming to the table with something and not just expecting a loan without collateral. I'm no loan officer, but from what you've posted I'm sure that will get you in the door to at least have a loan officer take you seriously.
Does the purchase include the real estate, or just the businesses themselves and you'd still pay rent or a lease?

jake0910
03-25-2016, 01:43 PM
Thank you. The purchase will include only the business, so I'd have to pay rent

Freelancier
03-25-2016, 02:32 PM
From what you describe, you'll likely need an audit of the business (down to the little details, like verifying with vendors that their bills are really up to date even if the accounting system says they are). But what you describe sounds like a going concern spinning off sufficient cash flow to service the loan, you shouldn't have trouble getting one or more banks together to put together a loan package that works for you. Also, be conscious that you will need cash post-closing to pay bills and such, so don't sink every dollar you have into the purchase.

I'd go into one or more community banks and ask their loan officers what they will need to loan money for this purchase. From what you describe, they should be able to walk you through the process and the documentation you're going to need to impress their underwriters.

Have you signed an LOI with the current owners yet so that you get to dig deeply into their business for the purpose of closing a deal with them? Think of it like an offer letter on a home pending the inspection. You will likely need to put some of your down payment money into escrow pending the results of your investigation, but that lets them know you are serious and that they have every reason to help you evaluate the deal further and secure financing.

Freelancier
03-27-2016, 07:57 AM
How exactly did you find this opportunity? Because for investors with spare cash, it sounds like a wonderful find.

IgniteGOC
03-29-2016, 04:23 PM
This definitely sounds like a great opportunity!

I do a lot of business plans for acquiring loans from banks as well as broker a lot of loans, so I can give some insight. <edited by Mod> I'd also recommend seeing if you qualify for a conventional business loan before going through the SBA. The SBA is great for startups, but it's a very cumbersome process and their terms can be a bit spooky.

Basics for a business loan from banks:
3 years of business financials and/or 3 years of owners' tax returns. Typically if the business is for sale, they'll let you have visibility to this. Sometimes the banks want the last 12 months P&L's, followed by two previous year end statements
Cash flow statement for the business
Balance sheets for the business
Next 12 months projections, by month
2 year end projections following the next 12 months
Business plan - This is where your magic happens. You can appendix the above forms, but a solid business plan will really help move that loan along quickly. Breaking down the business operations, as well as your loan amount requested, where the loan money is going, and how you intend on paying them back as well as charts showing net profits before and after loan payments (included in the projections) so that the bank will be comfortable knowing they'll get paid back!

Hope this helps! Let me know if I can offer further insight!

Business Attorney
04-01-2016, 01:52 AM
As others have noted, you have a very good chance of getting a loan, provided that you and your partner both have excellent credit ratings and are willing to sign personal guarantees and put up whatever collateral you do have.

Unless you are already familiar with the banks in your area, you may have to try a lot of different banks. Most banks have their own "sweet spots" both in terms of the size of the loan they are willing (or able) to make and the types of businesses that they are willing to fund. Even though your loan looks quite doable, a significant percentage of banks will probably turn you away simply because you don't fall within their comfort zone. To avoid wasting your time, talk to people in your community who are knowledgeable about the target loans of the various lending institutions in your area.