Congratulations – the Bank has agreed to approve your business loan. But what are the conditions and factors you will need to consider?
Business Loan Secured by Property
If your loan is secured by property, some of the factors you will need to take into consideration will include:
- Obtaining a Property valuation – will this be at your cost? How will it affect your borrowing power?
- Term of loan over 15-30 years. What will you be eligible for?
- Interest Only repayments for 3 – 5 years. Will this be enough to establish the business and be in a position to pay Principal?
- Interest Rates as reported at the time of writing this article (post Covid19) are sitting at 3 – 5% p.a
- Upfront Establishment Fees & Monthly Service Fees. What does your bank charge?
- Are there any other finance fees. Be sure to ask.
Business Loan Secured by Franchise Business
If your loan is secured by a franchise or business, there will some of the same conditions but the lending facility will want to delve more into the Business and may include:
- Obtaining a Business valuation – will this be at your cost? How will it affect your borrowing power?
- Term of loan over 10 years maximum? Or in line with Lease?
- Interest Only repayments may not permitted
- Interest Rate as reported at the time of writing this article (post Covid19) are sitting around 5 – 6% p.a.
- Upfront Establishment Fees & Monthly Service Fees
- Other Fees
- Keyperson insurance required for Directors/franchisees
- Personal Guarantees required from Directors/franchisees
- In a Franchise Purchase Tripartite Agreement may be required to be signed by borrowers, Bank & Franchisor
- Is the Franchise Agreement Acceptable to the lending institution?
- What about the Lease Agreement?
- Right of Entry/Lessors Consent to be signed by landlord?
- Is there a Bank Guarantee required by landlord for a rental bond?
- Does this need to be secured by cash/Term Deposit?
Conditions of loan approval will vary between Banks and Lending Institutions. Some will expect you to write a Business Plan outlining further detail. It is essential therefore that you are aware of the terms and conditions and expectations set by your bank and all approval conditions can be satisfied. For example a landlord refusing to sign a Right of Entry or providing Lessor’s Consent to the Buyer may create a condition for the bank withdraw approval.
For more information on how to obtain Business or Franchise Finance to assistin the purchase of your business, contact Derek Parsons at www.greenfinancegroup.comau a very experienced Finance Broker since 2006.