business loan? |
| Posted by: Tom Jun 4 2004, 03:37 AM |
| I want to purchase a very profitable nightclub (business only) that looks very good on paper. My first question is do I have to get a business loan or a commercial loan, and what is the period for the loan I need? What kind of down payment would a lender be looking for with this type of loan for this type of business? I will be purchasing the business under a newly incorporated corporation and plan on using a home equity loan on my primary residence as the DP. Will a lender have a problem with this? Since I will be using a home equity loan on my primary residence as the DP will my home be put in harms way concerning liability or would that only occur if I had to pledge my home as collateral? Concerning liability, if my home is used as collateral to secure the loan will it be liable against a lawsuit against the corporation? Any help you could give me concerning this matters would be of great help and appreciation. Thank you. |
| Posted by: loanuniverse Jun 4 2004, 01:04 PM |
| Tom: Lets see if I can address your questions by giving you some feedback. ” My first question is do I have to get a business loan or a commercial loan, and what is the period for the loan I need?” A business loan is a subset of commercial loans, so the answer is yes and yes. The amortization for this type of loan will be dictated mostly by negotiation and the cash flow from operations of the business. I would say that the lender would probably like to put it in a 3 to 5 year amortization at the most. ” What kind of down payment would a lender be looking for with this type of loan for this type of business?” I would say that at a minimum, you will need a 25% equity participation once all of the leverage is taken into account. A pro-forma balance sheet would need to be created that includes the loan for the purchase. ” I will be purchasing the business under a newly incorporated corporation and plan on using a home equity loan on my primary residence as the DP. Will a lender have a problem with this?” Well it depends…. A lender might have a problem if you are going to leave the job that qualified you for that home equity and you are thinking of using the business cash flow to repay that loan on top of the business loan. The underwriter might ask himself the question “is this business going to make enough money to pay my loan and Tom’s loans on his personal residence?”. Because if it isn’t, then chances are my business loan will not get paid. ” Since I will be using a home equity loan on my primary residence as the DP will my home be put in harms way concerning liability or would that only occur if I had to pledge my home as collateral?” A legal liability question? Please consult an attorney. ” Concerning liability, if my home is used as collateral to secure the loan will it be liable against a lawsuit against the corporation? “ Tom, I thought we already agreed that legal liability questions are best answered by an attorney. Bonus feedback: – This loan will be difficult to get done unless the exposure is small or mitigated {thinking SBA here} – The loan is not dependent solely on numbers, a lot of other factors are involved including your experience in the industry. – You say nightclub, I say risky business to be in. Some lenders might be turned off because of the industry. You know hot today, cold tomorrow. – You said profitable operations, the lender would want several years of financial information that can be relied on. Good luck. |
| Posted by: Tom Jun 4 2004, 01:27 PM |
| Thank you for the feedback, it has been a big help. I will not be leaving my full time job that qualified me for the equity loan for the DP and I do have some experience in the industry. Also the business has 5 years of financial statements that show excellent cash flow and profitability as well as low rent and overhead, and a great location with a transferable long term lease. How good do you think my chances will be? Also a 3-5 year loan sounds very short, is this standard for a bar/nightclub/restaraunt loan? Thank you for your help. |
| Posted by: loanuniverse Jun 4 2004, 04:54 PM |
| ”How good do you think my chances will be? Not very good in that industry. ”Also a 3-5 year loan sounds very short, is this standard for a bar/nightclub/restaraunt loan?” Honestly, that 3-5 year maturity was a guesstimate. The truth is that a commercial bank will probably not finance this type of deal. Thinking back on the eight years of commercial lending experience, I have worked in a couple of “business purchases”, and they were completely different from this scenario {either management’s LBOs or one partner buying another one out. Also remember that there is no real estate involved and if anything you are buying the going concern and the equipment. In reference to whether or not this is standard for bar/nightclub/restaraunt loans, banks do not usually lend to those establishments due to risk. You will probably see quite a few real estate loans to that industry, but not for permanent working capital. That is rare. |
