How much business finance can you borrow?
The amount of Business Finance lent to any given person or organisation is usually limited by the collateral they can provide and their ability to repay the loan. The larger the business loan, the more security required and the greater the repayments need to be.
Generally speaking banks will finance between 40 to 60% of the purchase price of the business. If it’s a well recognized franchise opportunity it could be at the upper end of this or even a little more. Lending will depend on a number of things, like the type of business, its cash flow, history, and your experience to operate such a business. Also the mix of plant, stock and goodwill will play a part in determining how much they will lend.
For the likes of a commercial property, Motel, Hotels etc. (land and buildings), banks tend to lend 50 to 65% of the valuation. The more secure the asset, the better the cash flow then the more favourable their evaluation.
Things that can impact on your borrowing
Before providing business finance lenders will look at your assets and liabilities as well as the assets of the business. They will then consider the debt servicing ability of the business and any other outside income you can introduce or debt you are currently servicing.
Security and collateral requirements
Houses are great - Banks will usually lend 80 % of the value of your home and or rental properties. This often becomes a good option as borrowing against the residual equity (value of house – debt) in your home can be more attractive as residential rates are more attractive than paying business finance rates.
There are few lenders who will consider plant and equipment for security, and these are unlikely to go over 60 or 70% of their value.
For more on business finance
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By Richard O'Brien - nzbizbuysell
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