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Buying a new business how do you finance it

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When buying a new business its so important to have your finances sorted out,when asked about buying a new business how do you finance it that’s the tricky question!Trying to get the money together  can seem like an impossible task. The good news is there are various avenues you can go down to get the cash that you need. Business loans are the most popular and your best chance of getting the finance you need, but numerous things affect how much a bank or lender is willing to give you. It’s worth finding out more about what they will look into before you actually apply.

How much can you borrow?

As a general rule of thumb a lender will give you 60%-70% of the business amount. There may be some banks that are willing to give you up to 80%, but you will need to supply a deposit of around 20%-30% cash. You’ll also need to prove to the lender that you have enough assets to cover the cost of the loan if needed.

Banks are actually pretty tough with their lending criteria these days. Therefore you’ll likely have to provide proof that you have a steady income and maybe even a freehold property. They will most definitely want to see proof that your business accounts will lead to a profitable future for your business. You’ll need to be quite thorough when breaking down your accounts and budget.

One of the key things to remember is to keep your figures realistic. Yes you want to impress them, but they will see right through any over-enthusiasm – it’s all about facts. You could have the best plan in the world for making the new business more profitable, but if you can’t provide solid facts you aren’t going to get the financial backing you need.

financing a new business

Borrowing for an existing business

Unless an existing business has good assets, banks tend to be a little reluctant to provide a loan. This is because it’s seen as an increased risk. With that being said, it’s actually a lot easier to get finance for an existing business than it is if you’re starting one up.

The problem will come if you’re trying to buy a business that has quite a poor recent financial record. You will need to be able to prove your management skills, as well as provide a strong plan on how you are going to turn it around and why it will work. You also need to show that you aren’t paying too much for the business.

To make sure you’re not paying too much, do a little research. Look at other businesses that are similar and see how much they are being sold for. Also work out how much you stand to make versus how much you are paying for the business. If you can show you stand to make a lot more money than what you paid, the bank may think harder about providing you with the cash you need.

Buying a business is a big responsibility; you really do need to be able to show that the business will be profitable. Providing hard facts will help you to get the financial help that you need.

 

 

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About Jemma Porter

About Jemma Porter

Jemma Porter is an experienced content creator who has written for a number of online publications. A self-confessed penny pincher; she's often found seeking out the best personal finance deals.

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