Loans for Business Purchase

[Ossiantoad]

I own a couple of small companies which turnover about £500-600k between them. I want to purchase a third business which is about the same size as the first two combined. They are all doing the same thing so there will be significant synergies.

Purchase price is around £120k and I want to borrow about half of the that with the balance being made up of a combination of cash and earn out. A £60k loan over five years, for a group with GP of over £20k per month doesn't seem outlandish to me.

I spoke to my bank representative/relationship manager/spotty teenager about borrowing money for such a purpose some time ago and their response was 'what's an earn out?'.

Any suggestions as to who I should talk to?

[Mr Overheads]

p2p loan? e.g. rebuildingsociety.com

[Ossiantoad]

Why should I need to go to p2p lending and pay 14% interest? The loan is very affordable, we have twelve years of experience in running these businesses, we have made a successful acquisition in the past and we can offer a director's guarantee. The banks should be all over me.

[sideways sid]

Simplify it for your bank bod. Ignore the earn out. Purchase price is the cash component plus the loan.

Then your application will match his form and the computer can approve your loan.

[griffgrog]

It's not the GP, it's the NP that's important and what you'd repay the loan from.

What about just borrowing the money using your mortgage. Cheapest way and the back will want a PG anyway.

[PurpleMoonlight]

Do you have a pension scheme, and is it worth at least £120,000?

If so, you could establish a SSAS and borrow the £60,000 at 1.5% pa.

[Ossiantoad]

My pension fund isn't big enough and I don't own any property. One of my co-directors may be willing to put his house up as collateral but he cannot raise any money against is as he is already at his borrowing limit, although he has over £300k equity.

Net profit would be around about £100k pa for the three businesses combined.

My spare cash was taken up in the last acquisition last year.

[vcm]

it should be easy enough to get the money from the bank from what you say. you're only looking at 7-ish months of future profit to fund it, or, if you're really confident, use last years net profit + 30k of loan/0% cards and you're done.
unless, of course, your p&l reserves are poor or negative, or there is more background that is putting the bank off.

[951TSE]

I was reading an article about business finance the other day and they highlighted two small banks that were keen to lend to SME's.

No idea if they're are able to do what you want but they could be worth a try. They're called Aldermore http://www.aldermore.co.uk/ and Shawbrook https://www.shawbrook.co.uk/

[Kudos]

Ossiantoad said:

My pension fund isn't big enough and I don't own any property. One of my co-directors may be willing to put his house up as collateral but he cannot raise any money against is as he is already at his borrowing limit, although he has over £300k equity.

Net profit would be around about £100k pa for the three businesses combined.

My spare cash was taken up in the last acquisition last year.

So what good is the directors guarantee if there is no separate collateral anywhere?

Remember, banks aren't interested anymore. I called mine this week to open a savings account linked to one profitable business. They wanted to know who my customers where, turnover and shareholders. All I wanted was a savings account to park money to be used for corporation tax!