Getting financing to buy a business can be tricky in Australia. Most people will get their funding from one of the big four banks, but there are other options available as well. The best way to find a great financing option is by using a professional commercial finance broker, as opposed to a mortgage broker. This is my number one rule for getting financed when purchasing a business.
Another extremely important tip to consider is to always have a line of credit set up against your property if possible. If you’re looking at buying a business, one of the first things that you should do is to contact a commercial finance broker and set up a line of credit to the highest equity value that you can get against your property. Every business owner or even individual in Australia should always have full access to the equity they have in their property through a line of credit, just in case . Once you have that set up, you don’t have to worry about the bank denying you later when you might fall on hard times.
When the time comes that you might want to buy a business, you will then have the flexibility you need, financially speaking . For example, if your house is worth $700,000 and you owe $100,000 on it, you can probably set up around a $400,000 line of credit against your property. If the business you’re considering buying is $300,000, it may be more advantageous to use your equity line than to obtain a business loan at all, especially since no bank is going to allow you to have your property stand alone against the business.
You may want to keep your property out of the deal, but the bank isn’t going let that happen. It’s your largest asset in most cases, so they’ll want it as security. You also may have much less pressure by using a home equity line, since the interest rate could be half of what a business loan might be, and the repayment period could be twice as long or more.
Another tip – don’t quit your job right away . Establish your finances first. Find the business you want to buy and get your loan in place while you’re still gainfully employed. This will make structuring your financing much easier on your broker and you.
Don’t forget to have your documentation ready – pay slips, tax returns, mortgage details, and bank statements from the last two years. Organise them, scan them in your computer, and put them on a flash drive. When you go to meet with your finance broker, they’ll be able to fast-track your loan application.
The last tip that I want to give you is this – Be open to changing banks. If your commercial finance broker is doing their job right, they’ll be looking at what many different banks and other lenders can offer you. There’s nothing wrong with being loyal to your bank, unless you can get a much better deal elsewhere. And in the end, it’s more important that you get the best deal possible and have access to your money as quickly as possible.