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Borrowing from a bank to fund your business purchase

Borrowing from a bank to fund your business purchase

Here are some things to consider if you think you might need to borrow money from a bank to fund your business purchase.

If you are thinking of buying a business, unless you have enough money saved to cover it, it’s likely you’ll need to speak to a business banker and borrow money to finance your purchase.

Here’s what to expect

Your business banker will want key financial information about the business you want to buy. This could include its profitability, cash flow, sales forecasts and growth potential.

Your banker will be looking for a sound business with healthy cash flow to make sure you’re able to repay the loan.

You’ll need equity in your business, which means you’ll need to invest your own money.

You may also need to provide security for your loan, which could include, for example, a residential property, or business or other assets, such as a share portfolio.

Here’s what you’ll need to provide

Your business banker might ask you for:

  • The current balance sheet of the business
  • A full tax return for the business (less than two years old)
  • Details of your qualifications for running a business
  • Information about your personal assets and liabilities
  • Details about the equity or deposit you have to invest in the business
  • Depending on your experience and the profitability of the business, you may also need to put together forecasts of expected profit and loss and cash flow for the first two years

Other considerations

1. Try not to leave it too late to meet with a business banker. It can take time for your banker to assess your new venture. It will also help to give you enough time to put your application together to secure finance before you need to sign the deal.

2. Be generous with the amount of financial information you provide. Your banker needs all the key numbers to make a decision. Any information you don’t provide upfront will have to be given at a later stage.

3. Think carefully about how much you might need to borrow. A lack of money to keep the business going is a common cause of business failure. Ensure you have enough capital to feed your business from day to day without starving it of cash flow.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances.