seeking a business loan

[ronnieron]

I'm looking at obtaining a loan, to purchase an existing business. The business would be a Fed-EX ground route, and would range from 125,000-200,000 and gross 140,000-240,000. Where do I start? I have credit in the 700+, but little money to put down. This would be my source of income from this business. I have no current business cards, should I apply?

thx

Ron

[bosshaug]

Do you have an SBA formatted business plan and a track record in this industry? Your credit score sounds good, but banks will also look at credit depth and how much collateral you may have (hard assets). You will also need money down to purchase an existing business: Best case, at least 10% and most banks will require more to take you seriously.

[ronnieron]

I don't have a track record in the industry. It's a delivery route through fed-ex and is basically maintaining and servicing the route. Your truck is left at the terminal overnight and is loaded for the next days deliveries. It's a pretty easy business to maintain and develop if needed. I have a house but seeing is there isn't much equity, I could hardly see it as collateral.

any more advice is welcome

thx

Ron

[greywolf]

The loan is strictly for purchase of the business, there would be no other use for the loan (ie equipment)? Equipment loans are somewhat easier to get than start up/purchase funding.

 

You might have a shot at a traditional SBA loan, provided the existing business is 3+ years old, and has solid profit/cashflow. I would make an appointment at a SBA office, to get yourself prepared, visit the sba.gov site to get a basic understanding of what they are looking for. There are specific details/information they are looking for in your business plan/model. Another good resource you should look at is SCORE.org. It gives you more information on the stuff the SBA leaves out. Don't apply for anything until you feel comfortable.

 

Also, the numbers you mention in your original post, $125k-$200k. Is that the purchase price being offered? That is a bit high, usually businesses sell for 2x-3x their yearly profit. Maybe since this is a specific business, the traditional rules don't apply. The SBA people are going to want to know why the price is so high.

[bosshaug]

Check with some local contacts that already own similar routes and ask them how they financed their businesses--this could give you some good insight and possible financing sources. Score.org is another SBA backed resource that allows you to consult with previous professionals in a specific industry, for free.

[ronnieron]

Most routes come with a truck that is free and clear, and are included in the price of the business. The truck and equipment(dolly etc) are the only collateral besides a small down payment that I have to work with. The yearly cash flow of most routes is about 80-90% of the sales price, in my area. Most routes have been established 5+ years and cash flow/gross income generated from the route is easily verifiable with sellers 1099.

Keep the good info coming

thx

Ron

[greywolf]

If the price includes some form of collateral, that will make the loan more approve-able. Are you purchasing the route from FedEx, or from an existing owner? Maybe FedEx has a preferred lender for this business. It almost sound like a franchise, but not quite.

 

As long as the income is documented, and there is proven cashflow you should have an easier chance for getting the loan through.

[ronnieron]

The routes are sold by existing owners. Don't know if fed-ex has a approved lender that they use or prefer, but most sellers will finance or carry 25% of the selling price. The only problem I'm having is if for some reason I default or don't meet the service obligations, fed-ex takes the route back and either finds another buy or pays someone to service the route. The only recourse the bank would have is any equipment(truck) that came with the route and not the route itself.

thx

Ron

[greywolf]

Seems like more of a franchise set up. Banks finance franchises all the time. (I know this isn't a franchise) The only problem I see is you do not have anything invested in the business (down payment). That is going to scare some banks away, and make it more difficult in general.

 

It really depends on the selling price, but 10-20% is what they like to see as owner invested upfront. Your equity might or might not count towards the invested amount, deepening on the bank's criteria.

 

One plus for you is the current owner is willing to partially finance. That lowers the amount, and also gives the bank reassurance.

[Tommy The Cat]

Seems like more of a franchise set up. Banks finance franchises all the time. (I know this isn't a franchise) The only problem I see is you do not have anything invested in the business (down payment). That is going to scare some banks away, and make it more difficult in general.

 

It really depends on the selling price, but 10-20% is what they like to see as owner invested upfront. Your equity might or might not count towards the invested amount, deepening on the bank's criteria.

 

One plus for you is the current owner is willing to partially finance. That lowers the amount, and also gives the bank reassurance.

I would add that a financier may also want to see that you have adequate working capital (cash).