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BlakMagic
01-01-2011, 08:37 PM
Hello,

Hopefully that title didn't make everyone shake their heads too much.

I just graduated with a B.S. in business management and am looking to possibly purchase a business. I had some questions pertaining to what sort of hurdles I may run into in the loan process.

SBA 504 loan most likely, financed by a bank.

The business I am thinking of purchasing is a existing business of ~40 years with a good cash flow and has been profitable for every year that I have P&L's for (last 4 years).

I have been involved in the industry since high school and worked in it for the past 4 years. I have some very good work experience and a good education background.

Here are my main questions. My net worth is low, and I have no major assets as I just graduated from college a few weeks ago. Obviously that is probably not the ideal circumstances when trying to obtain a loan of this size.

First I am estimating a 15% down payment, based upon a previously 'approved' deal that fell through on this same business. That will be paid for by my family.

Is a bank going to want, and or, require I have a business partner - even if I have the cash for the down payment, but no other real assets. If so any advice on that? My parents would possibly be willing to, if required. Also if a partner was required, how would I go about removing their name from the loan for liability purposes in the future?

I think that is all my general questions in obtaining this large of a loan in my circumstances. Just looking for advice and ideas. Again, I have specialized experience in the industry, the business is proven successful, the SBA default rate on a business in this industry is less than 1% (if any of that even matters :) )


Lastly, I had questions about how you can incorporate 'Working Capital' into a business loan such as this. The broker I work with says this is a normal thing to do, and had the previous loan written up with 50k of working capital. Who sets that amount, is it requested and approved by a bank, or is it based upon a calculation? What sort of limitations would I have with the usage of that working capital.

I think that is all for now, hopefully this all made sense. If anyone needs any more information feel free to ask.

Thank you for any help!

Evan
01-02-2011, 12:24 AM
Congratulations on finishing with your bachelor's degree.

Good luck getting a loan for $1 million, especially with a limited credit (based on age), and limited resources. The bank is going to think you're going to take the $1 million and go off to the Bahamas to be seen by nobody again. Very likely you will need others to co-sign or guarantee the loan, and you can't remove their name from the loan for liability purposes until it is paid off or until the bank agrees to allow this.

If this is a very capital-intensive business, and the loan can be secured by the assets of the business (and the FMV of these assets is well in excess of this loan, and clearly established), you may have a bit of luck.

BlakMagic
01-02-2011, 01:24 AM
Evan thanks for the additional information. I have never dealt with a bank for a loan such as this (obviously) but I am not sure how risky it is from a bank's perspective. Again, not super experienced but based upon my reasoning I don't view it as super risky to them.

SBA would likely guarantee at least 75% of the loan
Its a existing business with a proven track record
The money is not going in my pocket, it is the cost to acquire the business

Business does have assets that are valuable. Real estate and building alone are appraised at ~600k
Other equipment required in the business ~200k

Probably should have included that earlier.

Again the loan amount is used to purchase the business.

Thanks for the information - as I stated I have available parents with great credit to co-sign if need be (probably expected) wasn't sure if I set it up as a LLC if I could get them off the loan faster or not. That wouldn't be the end of the world anyways, I just don't want to tank a business and then have them responsible for all of it.

Thanks for the response so far!!

ArcSine
01-02-2011, 10:05 AM
Just a few random thoughts...

You've mentioned some things that are in your corner on this deal:
The target biz has a 40-year success track record
It's been profitable (on the P&Ls, at least) for the most recent 4 years
The SBA has a favorable default experience with this industry
You bring some personal experience with this business to the deal


These are all favorable from a lender's perspective, so be sure they are showcased in your financing package, and in your discussions.


Who prepared those historical financials? An independent CPA = more persuasive; prepared by the seller = less reliable.
What supports the claim re the 40-year success record?


You didn't mention any seller financing. Although not universal, seller financing is a component of smaller acquisitions much more often than not. A seller may have valid reasons for insisting on an all-cash arrangement, but you must make sure that those reasons have nothing to do with a lack of confidence on his part as to the long-run viability of the biz. And regardless of the reasonableness of the seller's all-cash motivations, any seller in today's tight-credit environment must have a healthy dose of reality---some seller paper might be the make-or-break difference in a deal that gets done, and one that doesn't.

How dependent is the company's success on the seller's personal involvement? A bank may be hesitant to lend into a situation where a key value-driver is heading for retirement in the Caymans. You've got to show the lender that either (a) the biz will continue through an abrupt changing-of-the-guard without a blip, or (b) you've got the seller locked up with a consulting contract for the next X years, while you learn the ropes.

With respect to the working cap requirement, 50K may or may not be reasonable in the circumstances. Look to the historical financials for an indication of what WC level was maintained while the seller was at the helm, but also remember that such level may not be optimal. Look also to the cash-flow forecasts you've done in vetting this deal. In those forecasts you had to deal with the same things that tend to drive the individual components of working capital; e.g....


What are the monthly sales; how much on credit; what the credit terms are; what the collection experience has been
What are the inventory purchasing requirements each month; how much "safety stock" to maintain; what kind of seasonality variations are typical
How much of the purchases are on credit, and on what terms


With respect to the working cap number in your projections---and the rest of your financing package, for that matter---a lender won't be swayed by overly slick, razzle-dazzle calculations, but he/she wants to see that you've put careful thought into each number, and built in an appropriate measure of conservatism.

Getting co-signers off of a note is only a little more difficult than swimming the English Channel while handcuffed. What may be required is a refinancing, at such time when the company's cash flow and assets can support, on their own, a new note that takes out the old one. As to your question, your business form (LLC, corporation, etc.) really won't make a difference on this point.

Very best of luck in pursuing this deal, and congratulations!

maintenanceguy
01-02-2011, 10:25 AM
Would you be willing to let us in on what industry the business is in? I ask this as I can't think of a million dollar business that only requires 50k in working capitol. Does this business come with employees? Do you need to buy materials? Just curious. If you are in a technology type industry or aggriculture or if you export a product I know the loans will be much easier to obtain. Just curious!

BlakMagic
01-02-2011, 02:16 PM
ArcSine,

Thank you for the excellent response. The 40 years of business, is just based upon the fact it hadn't closed, that can definitely mean it was not always profitable or always profitable but I do not think 40 year of financials are available.

The past 4 year financials are developed by an independent CPA firm. Three years previous to the last most recent 4 years, are available if needed I do believe.

Seller is willing to do some owner financing, pertaining to the down payment amount needed. He said he will carry up to 50% of the down payment if needed.

The seller is not a crucial part to the business being successful. If anything his lack of knowledge in the industry and lack of desire are causing issues. He is not a key player and is willing to stay on for a few months after acquisition.

I understand the working capital issues and ideas, I would be able to accurately calculate and defend my position for any WC requested. The business consistently year to year has expenses of ~200k. That is without any debt payments, I am assuming I would calculate those in also for a reasonable WC.

The seller is very confident the business will continue to be successful, he has zero interest in running it. He owns a lot of real estate, bought this business for reasons not pertaining to trying to run a successful business. Basically owned a business next door, wanted the land etc. As he now has gotten out of the business next door, he has no use for this property any more, and never had any interest in really running it. Even with all that being said, it has been successful. Weird circumstances, but maybe beneficial from a buyer standpoint.

The key for me in this business is probably no different than any other business acquisition. Seller wants $XXX amount of money, and I feel it is 'worth' a bit less than that. The business is in an ideal location, underperforming (but still doing quite well), and is set up pretty ideally for a business such as this. I have looked at similar businesses elsewhere, and have been really involved in the industry for a long time - the opportunity doesn't get much better. However I am unsure that means I should overpay by 100k or so because I think the business can be run much better, make it a lot more profitable, and at that point becomes worth a lot more.

Hopefully I won't have to cross that bridge.

Also I do have an A.A.S degree that is a degree in the actual industry and running a business in the industry. Then I went on to finish a bachelors in business management as previously stated. I know I have the skills and knowledge to be successful in the industry and think I could easily show that to the lender.

Again, ArcSine Thank you!

maitenanceguy, I will say it's a service industry with not a lot of overhead, as I stated earlier in this post replying to Arc, has ~200k in expenses a year (before debt). Employees stay if I want them, material costs are limited. I do not export anything. Thank you!

ArcSine
01-02-2011, 05:17 PM
A pleasure, BlakMagic...but I get the feeling from your last post that I didn't mention anything that you hadn't already considered, analyzed, and built into your plan :)

If the logical, point-by-point structure of your response is indicative of your approach to this acquisition, you're gonna do well.

"Employees stay if I want them..." Real glad to hear you bring that one up. That's frequently an important element in the overall risk-control analysis. Whichever side of that question you eventually come down on, I'm glad you've already put it under the light for consideration.

You mention a value-perception gap; i.e., seller claims a value of X, whereas you see the value as being something a bit south of X. Some variation on a so-called earnout structure may be helpful here. The gist is that you pay some amount at closing that's reflective of your sense of the biz's value, with the contractual proviso that you'll make some additional payments to the seller over some specified future time, IF the company's profit / cash flow performance meets or exceeds pre-specified benchmarks.

There's plenty of flexibility to craft the details in whatever manner you both agree to, but the gist is that (a) if the future proves that your lesser valuation was accurate, then your total payout for the company has been appropriately limited thereto; but (b) if OTOH the seller's optimism about the higher value proves valid in hindsight, then he shares in some of the upside beyond the "safety" price you paid at closing.

One more item that I'm sure you've already thought about (but the Steelers game's over and I've got a couple of minutes on my hands ;))...maybe you think about letting the seller hang onto the building for a while, as landlord. That would be a tremendous boost in helping you clear the financing hurdle. Might also make economic sense, if the real value there is in the business operations and cash flows, rather than the underlying property.

Should your "improve and grow" plans for the biz come to fruition, and you need room to expand, it might be much easier to get out of leased property.

Cheers!

BlakMagic
01-02-2011, 06:08 PM
ArcSine,

Thank you for the compliment! I have spent a lot of time trying to really make a wise first business decision.

Again extremely useful information. I have never EXACTLY heard the term 'earn out' - that I can remember, and I have researched it quite a bit now that you mention it and it honestly could be the difference between me buying it and not - this is extremely useful.

Found this on a website:

"An earn-out can allow an otherwise willing buyer and seller to bridge the gap in their respective valuation concepts for the business in order to complete a sale."

That is the largest problem we are having right now, there is a gap, not a HUGE gap ~10-15% of asking price, but this could work if he isn't willing to budge.

I really appreciate that information. I will keep you posted on the process's I go through with this business acquisition and if it happens!

Waiting for his end of year numbers, then producing an offer, and if need be to bridge the gap looks like this earn out clause could be the difference between acquiring and not acquiring.

Thank you.

jamesray50
01-02-2011, 06:27 PM
I just want to add something, it may or may not apply here. You say the company is profitable and you say it is a service company. The CPA firm I worked for was a service company and was also profitable every year. But, on the balance sheet there was a huge WIP balance and a huge AR balance. They had a WIP balance because a couple of the partners didn't bill for services and then when billing was done there was no collections on bad debt. Go figure for a CPA firm. But, like I said it may not apply in your case, but wouldn't hurt to check out the balance sheet carefully.

ArcSine
01-02-2011, 06:58 PM
A very good point from jamesray50....the financials (even audited ones) of a closely-held operation may have "off balance sheet" dynamics going on, which skew the numbers and ratios a bit. Nothing underhanded, just the reality that there may be forces "outside" the official financials that push the reported numbers away from what you'd normally expect to find.

For example, your seller may have been running the show with cash levels that are less than what would normally be considered prudent for such a business. But for him, it's fine because he has a personal credit line or two "at the ready" which he could tap for an immediate cash infusion into the biz, if need be. There's nothing wrong with that, and it's not the auditor's job to report, "Well, cash has averaged X over the last 3 years, but if it hadn't been for those personal credit lines in the background out there, cash would've been higher." In such case, of course, your working capital forecasts should be geared to what will be right for YOU, rather than what's reflected on the seller's historical balance sheets.

On the valuation gap issue, what I mentioned earlier about separating the operating biz from the real estate might be useful. To illustrate, suppose you're seeing the whole package (operations and property) as being worth 1,000 with the two components being worth 400 and 600, respectively.

Seller, though, is asking 1,100 and his perception of the two components is 350 and 750 respectively.

"OK," you respond, "sell me the business itself for 375, and I'll lease the property from you."

Regardless of which one of you is correct about the true val of the biz, that offer is attractive to both of you.

Gotta run, but best of luck with it!

BlakMagic
01-02-2011, 07:08 PM
James,

Excellent point and something I have thought about. I have extensive reports from his business, independent CPA firm, and even tax return copies. Not saying that that answers all questions, however in this industry there are no real accounts receivable. If there ever is it's a small % and usually the term is very short.

Arc, you bring up a great point and something I will definitely consider and possibly pursue with the seller.

Thank you all for your input! Keep it coming :)

Evan
01-02-2011, 07:17 PM
The past 4 year financials are developed by an independent CPA firm. Three years previous to the last most recent 4 years, are available if needed I do believe.

Are the financial statements audited, reviewed, or compiled? Which one. For potential lending decisions, banks generally will want reviewed financials (though many will say audited financials until they realize what that entails.)


A very good point from jamesray50....the financials (even audited ones) of a closely-held operation may have "off balance sheet" dynamics going on, which skew the numbers and ratios a bit. Nothing underhanded, just the reality that there may be forces "outside" the official financials that push the reported numbers away from what you'd normally expect to find.

For example, your seller may have been running the show with cash levels that are less than what would normally be considered prudent for such a business. But for him, it's fine because he has a personal credit line or two "at the ready" which he could tap for an immediate cash infusion into the biz, if need be. There's nothing wrong with that, and it's not the auditor's job to report, "Well, cash has averaged X over the last 3 years, but if it hadn't been for those personal credit lines in the background out there, cash would've been higher." In such case, of course, your working capital forecasts should be geared to what will be right for YOU, rather than what's reflected on the seller's historical balance sheets.

Audited financial statements generally do not have "off balance sheet" dynamics going on. Everything should be included in the financials, or disclosed somehow.

Cash contributed to a business from a personal line of credit would be recorded as such. Cash balances in audited financial statements are confirmed with the bank as part of normal auditing procedures under generally accepted auditing standards (GAAS). If the business has a Note Payable to the shareholder, the notes should discuss the nature of this note and its terms.

Financial statements should be considered in their entirety, including the required notes (unless omitted). If you are unsure how to read the financials, you may wish to consult with a CPA. The biggest factor is your industry that will have leeway on how the financials are read. Apply those numbers to a Dunkin Donuts franchise then to an accounting firm, or to a car dealership -- you'd get a very different response. Some businesses are capital intensive, others aren't and shouldn't be.

BlakMagic
01-02-2011, 08:00 PM
Evan,

I would hire a CPA to go over his financials, from what I can tell they are compiled reports. Income statement specifically.

Arc,

As I read into the Earn-Out more, it seems that the 'seller' usually stays on, runs the business to try and achieve a certain performance goal to get the additional money of the purchasing price. In my circumstance, I would be taking over operations of the business and implying I can run it better and make more $$ and if I do so I will pay more for him. Now I am sure some of this can be contractually better defined but for general purposes:

How is it beneficial to the seller in a circumstance where I may offer him XXX amount more money if I can increase net income XXX amount. Yes he gets more money if I do become more successful, but isn't he just trusting I will try and achieve that number, and not just wait out the earn-out agreement, then improve performance. I honestly wouldn't be that type of person (believe me or not) but this may be a valid argument from a seller's perspective especially if he was not 'running the ship' after the sale, as he wouldn't want to be.

Thanks for the advice!!!

ArcSine
01-02-2011, 08:16 PM
Audited financial statements generally do not have "off balance sheet" dynamics going on. Everything should be included in the financials, or disclosed somehow.

Cash contributed to a business from a personal line of credit would be recorded as such. Cash balances in audited financial statements are confirmed with the bank as part of normal auditing procedures under generally accepted auditing standards (GAAS). If the business has a Note Payable to the shareholder, the notes should discuss the nature of this note and its terms.

In hindsight, my phrasing ("off balance sheet") was a poor choice. I was referring to the mere presence of various things in the biz owner's life which impacts how he runs his business.

In an earlier post, BlakMagic had raised a point concerning the appropriate working capital levels. My intent was to remind him that the numbers on the financials may be skewed by the presence of such items. My example had nothing to do with cash contributed from a personal credit line. Owners who have such lines, or other sources of personal liquidity available, will often keep the business's working cap levels a bit 'leaner' than would otherwise be prudent.

The mere fact that a controlling shareholder has a personal line---or a large and liquid stock portfolio---is not disclosed on the company's financials, in notes or otherwise. Nevertheless, it would be misleading to think that the company's balance sheet shows the optimal working cap level, absent the intangible safety net of such outside factors.

Obviously, as soon as that line is tapped for a cash infusion into the biz, you've got something for the balance sheet and the notes. But prior to that, their mere presence may still affect how the owner manages the company's assets and liabilities.

ArcSine
01-02-2011, 08:37 PM
Yup, Mr. Magic, earnouts in their classic form tend to be better fits for situations in which the seller stays on in some capacity, both to help achieve and beat the benchmarks (which benefits both buyer and seller), and to see to it that the buyer isn't gaming the system to keep earnings artificially low until the earnout period has expired.

Still, the basic concept may give you a platform from which you could craft an arrangement that would help you guys bridge the valuation gap to your mutual satisfaction. The actual details are highly case-specific, and earnouts come in every flavor you can imagine.

Also very glad that you'll have a CPA at your elbow. If possible, try to rent one who has experience in small-biz acquisitions. His or her advice will be golden, and coin well spent. Also, the tax implications of a buyout are usually pretty complex, even in smaller deals. An experienced advisor will steer you around the traps, and maybe uncover a tax-savings strategy or two in the process.

Cheers, all...

jamesray50
01-02-2011, 08:58 PM
The case of the CPA firm I worked for was a partnership and they had a line of credit with the bank, but a couple of the owners would put money in the company when needed, so there was a liability for them on the books also.

Evan
01-02-2011, 10:05 PM
Evan,

I would hire a CPA to go over his financials, from what I can tell they are compiled reports. Income statement specifically.

Just a compiled income statement? No balance sheet? No statement of cash flows? No notes to the financial statements? The accountant's letter should describe all of the financial statements prepared. Income statement is nice, but it's not the whole picture. :)

Harold Mansfield
01-03-2011, 10:11 AM
The seller is very confident the business will continue to be successful...

I just thought that this was funny. Of course he is. He is the seller. What's he supposed to say, "Hey kid, I don't see a future here, but if you want it I'll sell it to you"?

I also noticed this:

I just don't want to tank a business and then have them responsible for all of it.
You don't want to go into a loan office with that lack of confidence. They want to know how much of your own risk you are willing to take. They'd rather see you put family on the line than risk their money.
Banks aren't into investing in people. They don't finance dreams like the commercials would have you believe...unless you have something to trade for that financing.

I could be wrong, but with no credit, no assets, or collateral...no bank is going to give you a million dollars. And I don't think the assets of the business help in that regard because banks don't want the business, they want the interest on the loan. The last thing they want to think about is having to liquidate to get some of their money back.

If you believe in the idea that you can make a success of the place I of course say go for it. But financially, you may have to look for an investor or take advantage of as much of that seller financing as you can.
If your parents are willing, then I say tap every source that you can to make it happen. Maybe they'd be interested in being partners, instead of just co-signers. But I'd say the least dependable source of financing is going to be the bank, unless you can give them something tangible that they can depend on to get their money back that doesn't involve the business that you want to buy.

Most people think banks first when they want to open their business. It's the obvious assumption. However, many end up finding other sources of money once they realize that it isn't like it seems.
How you really feel about this business will determine how far you are willing to go and how much you are willing to risk to acquire it.

A lot of things sound like great ideas when you think that someone will plop down their money to take a risk on your idea, but things start to become really clear when you are plopping down your own and risking everything you have, or have to start smaller to build your way up to the million dollar business.

I was also curious if you had any outstanding student loans? And how long you have been paying on them and are you current? If so , the SBA is Gov. Student Loans is Gov. If you are not good with one, they won't even consider backing you on the other.

Spider
01-03-2011, 12:25 PM
Ah! A freath of bresh air!! I second eveything Harold has just said. I wonder if I sound like a broken record constantly saying whenever the subject of bank loans crops up - banks do not risk their money - banks are not in the risk business, they are in the sure-thing business.

I hate to dampen anyone's enthusiasm, but I suggest we learn to walk before we try running. To me, the project outlined in this thread sounds like a great learning opportunity. Find a buyer for this business and get hired as the manager, if possible, with a small shareholding acquired with your own money. Build it up and make a success of it for someone else. Document everything.

Then, when you have learned how the world really works, you will have the wherewithal and the history to do it again for yourself.

BlakMagic
01-03-2011, 01:31 PM
Thanks guys for the responses, I know I may be an enthusiastic person and I may get shot down for the loan, but one way to find out :)

I am just trying to be prepared as possible.

I have co-signer(s) available with excellent credit, who will also be providing the down payment.

The SBA has previously approved a loan for this business before the deal fell through for other reasons, again default rate on loans for businesses in this industry less than 1%.

I have one degree that is specific to running this type of business, and a bachelors in business management.

I have extensive work experience in the industry and a group of excellent people I can use similarly to an advisor board.

The business has been around for 40 years, and we have financials for the last 7-8 years, all profitable.

I won't show any lack of confidence to a lender, and I have full confidence I am capable of running this business and very successfully because that is all I am educationally trained to do, and have work experience in doing almost the exact same things I will be doing if I owned a business.

I know many of you may be skeptical on if I can achieve this loan/results at this time in my life, but that is my current goal and what I am striving for. I may have no chance, and I am well aware of that. For the purposes of this constructive criticism dealing with obtaining the loan / tips in the loan process / other ideas are welcome and wanted. However telling me to not pursue it isn't really an option, even if that's how you feel...I will probably learn more from failing then not trying.

I think my chances are pretty good - we will see, again I thank everyone so far for the advice and ideas, they have been great.

Harold Mansfield
01-03-2011, 01:48 PM
I think that you are taking some of our opinions the wrong way. By no means is anyone telling you not to go for it. This is the "Go for it " forum.
What we are merely suggesting that you prepare for a fall back plan if the banks say's "No" and how dedicated are you at going forward if you can't get someone to loan you the money?

You have to have a plan "B", especially if you are dependent on others to go forward.
Many people have an initial plan, but that is rarely the way most businesses start..with a dream, degree, some paper work and viola! A bank loan. Most people mortgage, sell, and borrow everything they can and start with what they can scrape together and grow into a million dollar business. And that experience is unlike anything that you can learn in college.

If you have backers and co-signers with million dollar credit then you are closer than anyone else who just has a dream.
We all say go for it! But, we also ask, "If a bank doesn't loan you the money, is the dream dead or do you have a back up plan?"

How bad do you want it?
Is it one of those things that sounds like a great idea if you had a million dollars (seriously, what doesn't?) or is it one of those things that doesn't sound like a such a good idea if you have to sell everything you own, work a second job, and sleep in the store for a year to make a profit?

Not only that, but even if they do consider it. If you go and ask for a million, they may offer you something considerably less. Like Spider said, banks don't take risks on people and ideas.
Do you have a plan for that?
Of course we want to see you do it, but I'd hate to see the gleam in your eye grow dim because you weren't prepared to how harsh things are when you start asking for money from people or to see your dream die because you didn't prepare for a few let downs every now and then.

BlakMagic
01-03-2011, 02:39 PM
eborg, I understand that no one is probably telling me not to go for it- just reiterating what I was hoping to gain from this discussion, and so far it has been great.

If a bank is unwilling to loan me the money, I am likely up a creek without a paddle so to speak. I will have some other small options like Arc mentioned with trying to just buy the operating business and the land/building later.

I do think I have very good co-signers with great credit and are probably eligible for such a loan. The business has previously been approved by the SBA guaranteeing 75% of the loan value at the time (~1yr ago) and the loan was financed from a bank. Of course this is for a different person with different circumstances and I understand that.

If the bank offered me less than the loan value, I am not sure that will be that useful, as I won't be able to just come up with like 400k in cash.

All I can do is try, go in educated and with a plan of action and see how it goes. Hopefully I get to that point though, as previously stated the seller and I need to come to some agreement on the price, or use an earn-out of sorts - once I figure that out we will go from there :) Hopefully soon!

Thank you all for your help!

Harold Mansfield
01-03-2011, 02:44 PM
Well, keep us posted. I'm pulling for ya! If you do get the loan, how you did it will be helpful to many around here, I'm sure.

BlakMagic
01-03-2011, 03:02 PM
I will certainly keep everyone posted!

Spider
01-03-2011, 06:10 PM
...I know many of you may be skeptical on if I can achieve this loan/results at this time in my life, but that is my current goal and what I am striving for. I may have no chance, and I am well aware of that. For the purposes of this constructive criticism dealing with obtaining the loan / tips in the loan process / other ideas are welcome and wanted. However telling me to not pursue it isn't really an option, even if that's how you feel...I will probably learn more from failing then not trying...I'm not trying to tell you to not pursue a business of your own. I'm trying to tell you there are better ways of going about it. The way you have explained it, you are hoping to start a business, straight out of college, with a million-dollar debt burden hanging round your neck. Depending on several factors, your monthly payment will be in the order of $10,000 per month. That is a ball and chain, if every I saw one!

This is before you have paid any wages, purchased any materials or supplies, paid for electricity, water, telephone, taxes, made a single product or provided a single service. Before you pay yourself. Before you do anything, you must pay the bank $10,000 per month, every month, without fail. Even when cashflow is interrupted - and it will happen - such that you cannot pay your bills temporarily and do not have sufficient to meet your payroll, you must still come up with this $10,000 for the bank - even if you have to borrow more to pay it! And I'm sure you can see where that will lead.

Clearly, other ideas are not welcome if they don't speak to getting this loan. Yet, a loan as you describe is, in my view, the worst possible approach. I will accept that you can produce the results you anticipate. Having sex standing up in a hammock is likely possible, but it's not the easiest way to get laid!

BlakMagic
01-03-2011, 07:02 PM
Spider,

While I know you mean well i am not trying to start a business I am trying to buy an existing business of over 40 years that has a good financial record.

Also I know exactly what the business expenses are and what the debt payments would be. I wouldn't be considering purchasing this business if it would not be a profitable venture.

Thanks for the advice.

Harold Mansfield
01-03-2011, 07:09 PM
That is a "big nut to crack", as they say. $10k a month (before you even eat) , fresh out of college, is a huge undertaking. No warm up. No experience. Right into the fire. I'd be interested in knowing what kind of business it is that you are interested in buying, if you don't mind sharing.

BlakMagic
01-03-2011, 10:57 PM
The amount of the loan payment is irrelevant

What is relevant is the debt service coverage ratio.... net income / debt services.

I would take a loan out tomorrow if I could, for 20 million dollars if I knew the business produced 10million a year net - anyone would. (not saying the business I am looking at does 10mil a year net)

Spider
01-03-2011, 11:21 PM
Spider, While I know you mean well i am not trying to start a business I am trying to buy an existing business of over 40 years that has a good financial record.
.. Also I know exactly what the business expenses are and what the debt payments would be. I wouldn't be considering purchasing this business if it would not be a profitable venture.
.. Thanks for the advice.Please don't mistake my comments for advice - you have told us too little at this time for advice. I only have information sufficient to express an opinion, which could easily change if more information comes to light. As to you knowing the business expenses, I would expect no less, and I wish you all success.

daveb
01-04-2011, 07:03 AM
1 million is not a small amount and i think you will have a better chance with financial institutions and venture capitalists instead of the forum

Harold Mansfield
01-04-2011, 08:18 AM
I have to agree that you really haven't provided any information about the business. All we know is, it's a business that's been around for 40 years and you need a million dollars. That really doesn't mean anything anymore. Sheason-Leahman was around 150 years. As far as we know it's an outdated business model or fastly becoming obsolete because of technology, competition, or legislation.

We don't know.
People look for advice for all kinds of businesses like Video Rental stores, record stores, internet cafe's...and we have to talk them down from the ledge. So there is really no way for us to know what you are talking about past asking the bank for a loan.

So we can only give opinions based on knowing pretty much nothing about it. So the only thing we do know for sure is that you want a million dollars to buy it..so that's the only thing that we can concentrate on because we don't know anything else.
It's hard to give a well rounded opinion with only half of the information...so yeah. A million dollar loan from a bank for a mysterious business is going to sound like stretch to us, so my first response to that if anyone else said it off of the street is "Yeah, good luck with that".

It kind of sounds like when my friends say, "Man, if I had million dollars I'd buy that and really make some money".

phanio
01-11-2011, 10:50 AM
Have the current owner finance the business - 10% down, amortize the rest over 20 years with a five year balloon. Then in five years - see what you options are.

LBFINANCIAL
01-25-2011, 03:55 AM
A loan of this magnitude, I just want to be honest with you is going to be extremely difficult in the traditional banking organization. Its a gurantee you will need some type of co signer. and your credit will definately come in to play. "but" I would like to help you. My name is Faisal and I am the President of Lifetime Business Financial in Cleveland Ohio. We use lenders that use different criterias than banks in order to help you get the funds your looking for. We can close deals up to 500million.