A going concern business loan is an important topic to address once you have identified the restaurant, hotel or retail store that you wish to purchase. Few people have the means to buy a business with cash, without the need to borrow.
Banks are the most common form of external finance for small businesses. You should approach the bank that you already deal with, and see what they suggest as the best option for you. Banks are generally very risk-adverse, and so will want to loan money to businesses that can prove that they will be capable of repaying the money. In order to be successful, you must make a coherent case for borrowing the money as banks have strict lending criteria. You will be required to provide the following information:
- Business Accounts- You will need to supply audited accounts for the business you intend to buy, for the last three years where possible. Make sure that these accounts are a true reflection of the business. A bank can only lend money to you based on these accounts, regardless of any hidden income that the owner may assure you of.
- Revenue Projections- This has to be a realistic revenue forecast for the business. You can even create two or three scenarios to give the bank comfort on the likelihood of different outcomes. You must also detail what your cash flow is going to look like after you have factored in costs, such as repayments of the loan you are taking out.
- Business plan- An exhaustive 40 page plan must make a credible case for the business you are buying, its target market and your plans to reach that market. It should include what you propose to with the business you are buying, whether you intend to simply run it as it is or improve on it.
- Valuation- You will need to provide evidence of the value of the business you are buying. This should be undertaken by a professional, such as an accountant or valuation expert, who is paid to give a professional business appraisal. In the case of a property-based business, a surveyor’s report will help value the bricks and mortar. If the business is not property-based, you will probably be using a multiple of that business’ earnings.
- Selling Agent’s Details- You will be required to provide contact details for the agent representing the business or the vendor’s details if you are buying directly from the seller.
- Curriculum Vitae- A CV with details of your previous work experience will be needed. Keep this short and to the point, outlining any relevant experience that will help persuade the bank that they are reducing risk by lending to you.
- Asset and Liability Statement- This will detail what you own and what you owe.
- Bank Statements- You will be required to make bank statements available for the last six to twelve months. Anti-laundering and fraud legislation now require proof of your ID and residency.
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