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callmemills
10-10-2010, 10:17 PM
if you buy a business that is a proven moneymaker is it easier to get business loans etc even if you have bad credit or no credit any help would be greatly appreciated also has anyone had any luck with buying a previously established business

Business Attorney
10-11-2010, 02:12 AM
Although getting a loan for an acquisition based solely on the track record of the business being acquired is probably possible if everything aligns just perfectly, the truth is that it is extremely unlikely in most cases if the person making the acquisition has no credit history or a bad credit history.

Harold Mansfield
10-11-2010, 12:39 PM
I have to agree with David. The exception may be if the business has any inventory, equipment or existing contracts that can be used to secure the loan...or liquidated into cash. Just because a business is making a profit under one owner, doesn't necessarily mean that the trend will continue under new management and banks don't seem to loan that way. They loan based on what their chances are of getting it back with a profit.

Banks are not in the business of making dreams come true, like their commercials would have you believe. They are in the business of using money to make more money...so they either want to use your money to make investments to fatten their bottom line, or lend you money at a profit if there is a clear cut way that they will get their money back.
A business plan is usually not good enough to prove that. Cold hard assets are.

Makes you feel a whole lot better about using tax dollars to provide bailout funds, doesn't it?

Business Attorney
10-11-2010, 01:04 PM
... The exception may be if the business has any inventory, equipment or existing contracts that can be used to secure the loan...or liquidated into cash. Just because a business is making a profit under one owner, doesn't necessarily mean that the trend will continue under new management and banks don't seem to loan that way. They loan based on what their chances are of getting it back with a profit.

Harold is correct that some banks and asset based lenders will make loans backed by inventory, equipment or existing contracts, but I would caution you on two things:

1. Fewer banks make asset-based loans today than several years ago. Policing the borrowing base requires a continuing effort on the part of the bank, which makes the loans more expensive to administer. Valuation of the inventory and receivables also introduces an element of risk that many banks have discovered that they are not really capable of handling well.

2. Even when banks and asset based lenders loan a borrower money secured by hard assets, as Harold noted, "They loan based on what their chances are of getting it back with a profit." Even though they are prepared to take the collateral and sell it, that is not how a bank wants to get paid. Liquidating a borrower's collateral usually means a loss for the bank. Even where the bank can fully recover its principal, interest and costs of sale, that process consumes both time and effort on the part of the bank. No bank or asset based lender would make a loan where they thought that the most likely source of payment was liquidating the collateral.

phanio
10-11-2010, 01:09 PM
If you have bad credit - it would not matter how strong the business is. Your only option might be to get the business owner to carry the note.

Or, work on fixing your credit so that you won't have the issue come up over and over again.

Harold Mansfield
10-11-2010, 04:42 PM
Harold is correct that some banks and asset based lenders will make loans backed by inventory, equipment or existing contracts, but I would caution you on two things:

1. Fewer banks make asset-based loans today than several years ago. Policing the borrowing base requires a continuing effort on the part of the bank, which makes the loans more expensive to administer. Valuation of the inventory and receivables also introduces an element of risk that many banks have discovered that they are not really capable of handling well.

2. Even when banks and asset based lenders loan a borrower money secured by hard assets, as Harold noted, "They loan based on what their chances are of getting it back with a profit." Even though they are prepared to take the collateral and sell it, that is not how a bank wants to get paid. Liquidating a borrower's collateral usually means a loss for the bank. Even where the bank can fully recover its principal, interest and costs of sale, that process consumes both time and effort on the part of the bank. No bank or asset based lender would make a loan where they thought that the most likely source of payment was liquidating the collateral.

I guess the current housing market would be a clear example of that...banks own a lot of homes these days that they had no intention of ever actually owning. Especially since they are worth less than the loan that they originally financed them for. In a way it's poetic justice to be stuck with so much inventory that was overcharged for in the first place.
But it's probably why no one can get a loan for 2 nickels to buy a dime.

callmemills
10-11-2010, 06:10 PM
what about having a cosigner what will theyre obligations be and will banks look at things like you having an mba

Harold Mansfield
10-11-2010, 07:42 PM
what about having a cosigner what will theyre obligations be and will banks look at things like you having an mba

I don't think that makes much of a difference because banks don't invest in people. At least not people without a proven track record. If you were a frequent customer or borrower with an excellent track record of returns, you could be a high school grad and probably get more consideration.

callmemills
10-11-2010, 08:23 PM
man this is bad news

Harold Mansfield
10-11-2010, 08:48 PM
man this is bad news

It doesn't have to be, it just means that a little creativity, sacrifice and ingenuity are in order. Most people that go from working to starting a business don't walk into a bank and just get money and off they go. Actually hardly any small business just walks in with a business plan and walks out with money. Banks just don't do that. I've only seen it in movies.
Generally people exhaust all of their personal assets, borrow from friends and family, second mortgage on the house and sell what they can to get started.

If you look at some of the most successful businesses of the last 10 years...most didn't start with any bank financing. It was personal finances and private investors.

Spider
10-11-2010, 09:51 PM
This whole conversation is really quite frustrating to read. Retail banks (the one's you are likely to be dealing with) are not in the risk business. You are looking for an investor, even if the investor ends up giving you a loan. Investors deal with risk. Banks are not investors. Sorry to say, you are knocking on the wrong door.

You could approach a finance company for an asset loan, a factor for an advance on current invoices, you could sell delinquent receivables, if the business has plenty. You could sell and lease back equipment you own (or would own, when you buy the business.) There are lots of ways to raise money to buy a business, but a bank loan is not likely to be one of them.

If you are serious, you need to contact a financial business consultant experienced in business financing, M&A, leverage buyouts and the like. There is much due dligence to be done and you need a professional holding your hand.

You also need to have some money of your own unless you have some exceptional skill or talent that the business needs.

callmemills
10-12-2010, 08:27 PM
thats a good idea would it be possible to find an investor that would be willing to invest in buying a pre established liquor store do you know anyone that has any experience like that working with an investor I already have some money of my own but not enough to purchase a business outright