My sister .........
Discussion
... bless her, wants to buy a business.
Nothing wrong with that, as it shows a bit of get up n go, which is always a good thing. Only problem is that she has no capital and no income.
The business she is interested in currently has a turnover of £50k a year (not a huge amount admittedly, but you gotta start somewhere) and should show a net profit of about £15k a year, with potential for growth over the next couple of years to maybe £70k.
She doesn't/won't need any real money to live on as she lives with me mum (and will continue to do so) and the business costs include the majority of household running expenses (heating, light, council tax etc) but she needs to find a way to raise £170k as the initial purchase price.
To my mind the business model makes sense and will support the repayments on a loan/mortgage of this size, but our high street bank isn't interested. Anyone got any ideas of who could be interested in offering the mortgage?
Nothing wrong with that, as it shows a bit of get up n go, which is always a good thing. Only problem is that she has no capital and no income.
The business she is interested in currently has a turnover of £50k a year (not a huge amount admittedly, but you gotta start somewhere) and should show a net profit of about £15k a year, with potential for growth over the next couple of years to maybe £70k.
She doesn't/won't need any real money to live on as she lives with me mum (and will continue to do so) and the business costs include the majority of household running expenses (heating, light, council tax etc) but she needs to find a way to raise £170k as the initial purchase price.
To my mind the business model makes sense and will support the repayments on a loan/mortgage of this size, but our high street bank isn't interested. Anyone got any ideas of who could be interested in offering the mortgage?
The cost of the business seems a wee bit on the high side compared with the annual turnover and profit. If it's a one or two man service business (which it sounds like), then it seems to me that you're paying an awful lot for goodwill, unless there are some fairly decent tangible assets to come with it.
I'd ask your bank why they weren't interested in lending - the price may be a factor.
What kind of business is it?
I'd ask your bank why they weren't interested in lending - the price may be a factor.
What kind of business is it?
Got to agree with Rude Girl, given those figures the price is very high unless the fixed assets are not liable to depreciation, most businesses would be looking at a maximum of 5 times net profit as an asking price unless something extraordinary was included!
I don't think any lender will look at giving more than 75% or so plus a guarantor for the rest and a proven track record, too many small businesses fail thru lack of capital and cash flow for them to lend to someone who has nothing.
Sorry for the doom and gloom, Nick
Edited to say:- Wrote this before you re-posted so partially irrelevant, must be in a very cheap area to get that acreage and a house for £170K!!
>> Edited by aprisa on Thursday 2nd January 14:10
I don't think any lender will look at giving more than 75% or so plus a guarantor for the rest and a proven track record, too many small businesses fail thru lack of capital and cash flow for them to lend to someone who has nothing.
Sorry for the doom and gloom, Nick
Edited to say:- Wrote this before you re-posted so partially irrelevant, must be in a very cheap area to get that acreage and a house for £170K!!
>> Edited by aprisa on Thursday 2nd January 14:10
incorrigible said:
mondeoman said: The business is a Livery Yard/Riding Stables - you get 40 odd acres and a house thrown in for the money
where abouts is that
Well you gotta know where to look .......
I also know one for sale in Cornwall - 30 acres, 6 bed farmhouse, overlooking the sea ...... swimming pool - yours for £475k .......
Having just done some similar research and had a very long conversation with the Bank Manager. The bank will look at the gross profit of the business over the last 2 years, generally they will then multiply this by 3. They will then look at all of the assets and add those in to the price. This will give them the suggested cost of the business. Unfortunately, goodwill does not count for a lot in the equation as far as they are concerned.
The money that they will lend will depend on what they see as the risk. So if the assets are worth £50k then they know if the business goes belly up they can recover this. If the purchaser is willing to put in extras, such as house as collaterol they may increase further.
I would say that as your sister is going into business for the first time, has no house, is looking at £15k profit per annum and wants to borrow £150k, she is going to have no luck at all, unless the assets can be valued at close to the purchase price. Even then I think you would need to find a very generous bank that would risk that kind of capital.
Whilst we can all see the potential of that new business, the banks look at the balance sheets to make a judgement. Sorry to sound negative.
The money that they will lend will depend on what they see as the risk. So if the assets are worth £50k then they know if the business goes belly up they can recover this. If the purchaser is willing to put in extras, such as house as collaterol they may increase further.
I would say that as your sister is going into business for the first time, has no house, is looking at £15k profit per annum and wants to borrow £150k, she is going to have no luck at all, unless the assets can be valued at close to the purchase price. Even then I think you would need to find a very generous bank that would risk that kind of capital.
Whilst we can all see the potential of that new business, the banks look at the balance sheets to make a judgement. Sorry to sound negative.
Ok - lets throw this one into the pot and see if any opinions change ...... my parents own a decent sized property which is on the market for just under £0.5m and are prepared to put the proceeds from that sale into my sisters business.. (which will be most of the sale price)
Could she reasonably expect someone to consider a bridging loan for the purchase price with my parents property put up as security?
Could she reasonably expect someone to consider a bridging loan for the purchase price with my parents property put up as security?
Personally I would not look at a bridging loan, the interest rate is normally a tad high. A better bet may be an equity release loan on the parents house, providing the repayments can be made. Looking at the figures as the banks do the fact of no capital to start is the main problem. Add in some equity from your parents house and a loan may be do-able. What do you think the included house value is? This is the asset of the business, if around £125K then around £170K is OK, if much less then the asking price is too high.
kevinday said: Personally I would not look at a bridging loan, the interest rate is normally a tad high. A better bet may be an equity release loan on the parents house, providing the repayments can be made. Looking at the figures as the banks do the fact of no capital to start is the main problem. Add in some equity from your parents house and a loan may be do-able. What do you think the included house value is? This is the asset of the business, if around £125K then around £170K is OK, if much less then the asking price is too high.
Well, 40 acres at a minimum of £2k/an acre, with at 2 bed house in this particular location at about £100k, then I figure the purchase price is pretty good.
Any loan payments have to be meet from continuing income from the business, and with £15k net profit pa then this is acheivable until my parents houes is sold.
Perhaps I need to get involved and bend a few ears ..........
£170k for a house, 40 acres, stables and a business sounds a good price to me. The house and land value are more likly to increase than depreciate although probably not at such a high level that has been seen over the last few years. If your parents sold their house and provided a large amount of the finance then can't your sister take out a morgage for the house, if she is living in it? IIRC they lend you your income x3 + 10k (standard). You said the profit is 15k a year, is your sister getting a wage + this profit or is she simply using the profits as her wage/drawings?
The net profit would be used to service the mortgage, as my sisters boyfriend would be providing their "living" income, and then any expansion of the business is a bonus. And there IS potential for it, given its location and accessibility to a major city.
The best case scenario is a mortgage now for the full amount until my parents house is sold, then a re-payment of say 50% of the outstanding balance, leaving the business to pay the rest and provinding more income for my sister.
As to whether she has thought about an active partnership, dunno. If you're serious (and it would mean re-locating), then mail me and I'll pass you on to my sister.
The best case scenario is a mortgage now for the full amount until my parents house is sold, then a re-payment of say 50% of the outstanding balance, leaving the business to pay the rest and provinding more income for my sister.
As to whether she has thought about an active partnership, dunno. If you're serious (and it would mean re-locating), then mail me and I'll pass you on to my sister.
Another thought...is it being sold as a going concern? On the riding school side - are there any horses, tack, equipment, rugs etc included in the price, or are these all to be purchased? If these are all to be bought - then they need to be taken into consideration - and that's a hefty cost - along with liability insurance. Also - are there any schooling facilities - or do these have to be built?
How's the livery side? Is it able to prop up the school side of the business or does it all need work? What's the state of the property - both the house and the stables?
The price sounds good to me - although a lot would depend on the answers to the above!
How's the livery side? Is it able to prop up the school side of the business or does it all need work? What's the state of the property - both the house and the stables?
The price sounds good to me - although a lot would depend on the answers to the above!
tango2 said: Another thought...is it being sold as a going concern? On the riding school side - are there any horses, tack, equipment, rugs etc included in the price, or are these all to be purchased? If these are all to be bought - then they need to be taken into consideration - and that's a hefty cost - along with liability insurance. Also - are there any schooling facilities - or do these have to be built?
How's the livery side? Is it able to prop up the school side of the business or does it all need work? What's the state of the property - both the house and the stables?
The price sounds good to me - although a lot would depend on the answers to the above!
It currently has 40 horses on DIY livery (IIRC) and the aim is to change that to include a portion of full liveries.
The riding school would have to be built up, but a previous business in Cornwall (don't ask!) will provide the initial school horses and some of the tack. I don't know if there is an outdoor or indoor ring, but that is not a great expense in the scheme of things.
AFAIK the house is certainly liveable and the other facilties are in reasonable condition - I haven't visited the property yet........
As a business purchase it does not seem to stack up, but as a house purchase it looks like good sense. Does your sister have a job and can they put their incomes together to give them the chance of buying the house?
In my opinion they will benefit all round from this kind of deal. The money will be far cheaper, if they don't have a deposit then they could rely on the clear generosity of your parents to get a personal loan for the deposit and purchase costs secured against the house currently for sale - that loan can be paid off as soon as the house is sold leaving out the need for extortionate bridging (which you are unlikely to get given the possiblilty of no sale being forthcoming).
Your parents could also guarantee the mortgage if it is a personal one, avoiding worries about 4x salary factors. All this is easier to my mind than the business route. They should steer clear from telling the bank more than they need to know, and come clean only after they have bought the place "ooh I have bought this lovely place Mr bank manager, I am going to open a stables, I need nothing from you but a new company bank account"
good luck with it ...
In my opinion they will benefit all round from this kind of deal. The money will be far cheaper, if they don't have a deposit then they could rely on the clear generosity of your parents to get a personal loan for the deposit and purchase costs secured against the house currently for sale - that loan can be paid off as soon as the house is sold leaving out the need for extortionate bridging (which you are unlikely to get given the possiblilty of no sale being forthcoming).
Your parents could also guarantee the mortgage if it is a personal one, avoiding worries about 4x salary factors. All this is easier to my mind than the business route. They should steer clear from telling the bank more than they need to know, and come clean only after they have bought the place "ooh I have bought this lovely place Mr bank manager, I am going to open a stables, I need nothing from you but a new company bank account"
good luck with it ...
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