Whether you are looking at financing to purchase a new business or to expand your existing business there are two main sources available – equity and debt. It is common practice that part of the funding for a business will be by debt, typically by way of bank loan.
There are many different types of bank finance available, all with different purposes and taxation implications. Some of the common bank financing packages includes:
– Leasing (for a business motor vehicle for example)
– Hire purchase (for purchase of capital equipment for the business)
– Term Loan with principal and interest (to fund the acquisition of a business)
– Commercial bill (used by larger businesses)
– Bank overdraft (to cover operational cashflow requirements)
When looking to obtain business finance from the bank it is common that the bank will require a mortgage over your house, or other personal assets, as security for any borrowings. Financiers will not generally lend without adequate security and this is assessed in a conservative manner. In addition to security the bank will also look at serviceability of the loan and evidence that you are going to eventually repay the loan.
An alternative to bank finance is to obtain Vendor Finance. This is an arrangement whereby a purchaser acquires a business from the vendor and pays the price of the business over a period of time by way of agreement. Although often difficult to obtain, it is nevertheless another aspect to include in your purchase negotiations.