Our client had decided they wanted a career change, completely leaving the property industry to purchase a fresh food wholesale distribution business. Herein lied the challenge – convincing a bank that this very smart individual, who had a lot of experience in property development and construction, had any clue how to run a business that had nothing to do with where his experience was.
How We Helped
We started by identifying the client’s strengths, which, although they were in a different industry altogether, included personality traits and business experience that were very much applicable to any business.
The business purchase contract terms were also important, particularly the period of time post-settlement and the degree of assistance during thereof, that the vendor must provide to the purchaser (this is always very important in any business sale, even to purchasers experienced in the same industry).
Furthermore, even though the client had a lot of equity in their home, which they were willing to provide as security to the bank to support the business loan, major banks often don’t see the logical value in this – but instead want to see actual cash contributed to the purchase. At STAC, we struggle to see this banker argument’s logic. If, over the years, I choose to pay down my home loan early instead of saving cash in the bank, somehow that makes me a higher risk than the person who doesn’t pay down their home loan but instead contributes that same amount of equity as actual cash towards the business? Completely illogical in our view.
Outcome
Funding via a 2nd tier bank, by way of a term business loan and overdraft, for 100% of the business purchase price + purchase costs + working capital, was locked in for the client, enabling them to purchase and operate the business with sufficient working capital, without contributing any cash.
Their home was provided as supporting security, which equated to a total LVR of about 80% of home value plus business value. This was a great outcome, considering that banks are not in the habit of providing anywhere near 80% LVRs against business values!
If you’ve wanted to buy a business, even in an industry you haven’t been in before – and you have equity to put into the deal – but you’ve been told by banks that you don’t qualify, then talk to us about whether it might be possible.
We’ve funded countless business acquisitions over the years at STAC – under STAC Business and STAC Home. No matter what type of funding you need, we’ve “been there, done that”.
