The word ‘value’ is multi-faceted and when it comes to your business, several interpretations of that word applies. However, traditional financial institutions don’t always see value in the same way as the business buyers and sellers.
‘Value’ has a monetary meaning – determining how much something is worth. However, something can be valued because it is important and worthwhile to someone.
We asked Vijay Reddy (Practice Manager) and Abhishek Maharaj (General Manager) of Winquote SME what is the difference between how banks and business owners see the value.
“Buyers see the value not just in profits of the business but also in what lifestyle and other benefits it will bring to them. While the banks are interested in assets and capability of the business to service the debt.
“In order for one to acquire finance, one needs to keep in mind what is the banks and financiers point of view and what they are looking for,” Abhishek said.
“For clients looking to purchase a business, we look at their existing income outside of the business being purchased. It’s important to assess the incoming Director’s financial position and the strengths that they will bring to the business. A combination of a good business and a good incoming Director brings strength to the table when seeking finance from the bank
during business acquisition.”
With that in mind, we asked Vijay to run us through the steps needed and what the banks like to see to successfully attain finance for a business purchase.
“Firstly, do your due diligence on the business being purchased. Realistically establish what profits you have to assist with servicing debt and, if needed, where the shortfall will come from while you’re improving the business’ performance,” Vijay said.
“Get yourself ‘debt ready’ – we have a checklist that we offer to help you work through when you get in touch with us. And prepare a Business Plan to show that you understand the business you’re getting into and what you intend to implement to improve its profitability.”
Vijay said it is also important to prepare a realistic Cash Flow Forecast and establish working capital requirements, whilst getting advice around the best tax structure and asset protection for your personal situation.
Since the Royal Commission into the banking sector in Australia, private lenders – or shadow banks – have stepped up to offer a viable alternative. Often described as the country’s ‘fifth bank’, these lenders have more flexibility in evaluating and managing risk.
So, what’s the difference between applying to/borrowing from a traditional bank and an organisation such as Winquote SME Finance?
“Our approach is solution-based,” said Abhishek. “To get the maximum funding for your business acquisition, including working capital, additional equipment and assets, we may approach a number of funders to make up the total funding you require. Often, we will use a traditional bank for all, or part of your funding.
“However, these applications have to be handled professionally, with a clear understanding of purpose, to negotiate pricing. This is where we specialise, as we manage numerous applications with various lenders and have developed a strong team able to find the right lenders to be part of your overall funding solution, getting you the advantage of being debt-ready ahead of other potential purchasers.
“Brokerages like ours are here to assist you secure funds that are not restricted to one traditional lender. Where Winquote SME Finance stands out is that not only do we help you secure funding in a timely manner, and project manage all your funding assignments, but introduce you to trusted lenders.”
That might make it sound easy, but there are some common mistakes people make when applying for a business loan.
“One of the most common is thinking a friendly bank manager is all you need,” said Abhishek. “In the current credit climate, all bankers are accountable and loan applications must meet the bank’s criteria.”
Another mistake is to approach lenders when you are not debt-ready. “It makes lenders think that a potential purchaser isn’t organised and reflects badly on your application.
“Seeking a business that may be an unrealistic business purchase is another common mistake. It’s important to pursue businesses within your finance capabilities.”
Other common mistakes include applying for finance through a number of lenders at the same time, as this could adversely affect your credit score, ultimately jeopardising your finance application.
“It may be better to enlist the services of a finance specialist who can assist you with navigating all the options so you can proceed with the most likely option first,” said Abhishek.
About Winquote SME Finance
Winquote SME Finance helps potential business buyers secure finance for purchasing a business. We manage the entire funding process, making sure that you put your best foot forward with your loan applications. A proven team of trusted finance relationship managers, you can rely on our 40 years of finance management experience to help secure the funding you need for your business to do business.
Email: [email protected]