Need to secure $1M loan to purchase a business...what are my chances???

[EandTSBS]

I am part owners in a service business with yearly revenues of $2,250,000.
We have been in business for 4 years.
Net Owners Income = $250,000/yr in 2012, $220,000/yr in 2011, $140,000/yr in 2010

One of our direct competitors that has been in business for 20+ years is looking to sell.
His yearly revenues are $5,000,000.
Net Owners Income of about $550,000 yearly

We are looking to buy his business but we do not have the cash.
Will we be able to secure funding based on the cashflow of our existing company coupled
with the newly acquired business?

Can we use our business as collateral if needed?
Do I try to get a loan from our bank first? Or should I try private lending firms?

I need 1 million? What are my chances?

[Fulcrum]

Hello EandTSBS,

Sounds like you may have a good deal from your description. Is there real estate involved in the purchase and what kind of timeline are you looking at?

There are a few ways of going about this. The cheapest route is a bank loan; however, you will need to jump through many hoops before they will make a loan. They are going to want to see 40% as a down payment, your ability to run the business will need to be proven (judging from your post I think that this will be covered), high credit score, and what the liquidation value of all equipment and inventories are. You're best bet here is to go to a commercial lender and request information.

You can also ask the seller if he is willing to carry the financing. Depending on why he is selling, this may be the best way of getting the deal done. If he needs more cash than what the down payment is, he always has the option of selling the payment stream. I know I sound like a shady late night infomercial here but the secondary private finance markets are what got me to start thinking about going into business.

Unfortunately I cannot give any further information as I believe that falls outside the scope of this forum (please correct me if I am wrong) and the details required shouldn't be posted in the open.

However you proceed, make sure that you have experienced business lawyers involved early on.

If you have any other questions, feel free to ask.

[fredoe]

Hello EandTSBS,



Unfortunately, it won’t be easy or nearly impossible to get a loan for $1 million with sales revenue of $2,250,000 unless you have collateral to put down.

My suggestion to you would be to get approved for around $250,000 with a loan terms of 6 months payback. 3 months later, you are able to take out some more funds as our loan works just like credit line.

[nealrm]

Why is he selling a business that is bring him in $550,000 for 1 million??? With that revenue stream you should be looking at a selling price over 2 million.

I would see if he would be willing to accept a cash flow deal. Offer to pay him his full current salary for the first 2 years or half his salary for 4.

[Seth_Mossberg]

Good day. The good news is that buying an existing business opens up your options with regards to financing. If walking into a bank and securing traditional financing is not an option for you look towards alternative financing options like a Revenue Advance or Line of Credit. We offer these programs to people that are purchasing an existing business with an established history of revenue that can be calculated and reasonably relied on moving forward. Another option is leverage whatever equipment the business has or identifying new equipment you need in order to obtain Equipment Financing.

It is hard to give a definitive answer without speaking with you about the specifics and running the numbers.