If you’re looking to own and run a business, there are many advantages to buying an established business rather than starting from scratch – even if you need a loan to do so. It’s important, however, to find out what finance options you have available and how much you can borrow as part of your loan. Explore and compare your finance options for purchasing an existing business with this handy guide.
First and foremost, it’s worth knowing that you won’t be able to borrow the full amount. Most lenders are going to want you to contribute a fair amount to the purchase (perhaps 20% to 50%, depending on the lender and the situation). This means that you can’t just get a loan to buy a business outright – you’ll need to find funds to contribute.
The actual amount a lender will be willing to loan you for the purchase will depend on a number of factors, including your available resources, your recent financial history and your credit rating, so the better your history with business and money is, the better your borrowing power is likely to be. The current success of the business you’re buying will also be a factor. Overall, a business loan could offer from around $5,000 up to well into the millions – for the right customer.
It’s also worth remembering that when you’re buying an established business with a loan, its success and financial standing contribute towards your lending power. As such, lenders realise that if you’re buying a currently successful business, you’re probably going to be well set up to be able to make repayments on the loan in future. You’ll also have access to the business’ assets, so if the sale includes a property, for example, that can then be used for collateral on the loan. The trade off, of course, is that a successful business with good assets is most likely going to cost you a substantial amount more than a struggling one.
In Australia, a traditional loan isn’t the only way to secure finance to purchase an existing business – it’s just one of a range of possibilities. Below are a range of options for securing loan finance.
If you’re exploring lender-based finance for purchasing a business, Savvy is one of the best places to start. You can compare commercial loans from a variety of Australia’s top online business lenders to help you choose one suited to your situation.
The established business will generally already have cash flowing through the system. The system is already working; you just need to keep it that way.
You already have experienced staff working with established business practices, provided you can keep them.
Your business likely already has an established brand and name for itself and an existing customer base. This lessens the need to build your market from the ground up.
Your business will probably already have suppliers in place and existing relationships with those suppliers.
In addition to physical equipment, property and staff, your business might also come with less obvious assets, such as copyrights or patents. These can increase its value quite significantly.
A business that’s doing well already will generally cost more to purchase. You get what you pay for.
You might need to work hard to prevent key staff leaving as leadership changes and make sure customers don’t lose faith in the brand.
If an established business has been in action a long time, it might have processes, equipment, or technology that are now out of date.
One of the perks of setting up a new business is the freedom to do your own thing. This generally isn’t an option with an established business, though, especially not if you want to retain existing staff.
Sometimes the public perception of a business can be quite negative. This can potentially be difficult to undo, and might be why the business was sold.