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Existing Business - Money Down?

There is a business for sale in my area for close to $1 million. This includes the building and business. There is a strong track record of profits in the past years and the company has been around for a long time.

I was wondering if someone knew how much money most banks need for a down payment for something like this.

Any help from someone who has some experience on this subject would be greatly appreciated.

What kind of business and what’s the profit margin?

It’s a gym and it has over 1,000 members. Its hard to believe it has that many members, but I was able to talk to the receptionist and look on the computer to how many paying members there were.

As for exact profit margins, I’m not sure. I have to talk to the owner and I need to sign the disclosure forms, etc before he tells me anything.

I talked to managers and they said the owner is doing well, but wants to sell and cash out and continue with his other businesses.

I you want a loan to buy a business, I think you’ll need to present a business plan.

http://www.businessplans.org/index.asp

Check out sba.gov there is a lot of good info on there and its a great starting point. Also google search community express loans to find an office in your area. If you are a vet, minority ect there are lots of non profit financial firms that are willing to help you all the way through, for free. Hope this helps, good luck

Thanks for the help guys. My “business partner” owns an auto shop and owns another business, so he’ll be our mentor. I was just curious how much banks want up front. Our mentor banks with one bank and is going to try and use his influence to see if we can get it with very little money down, since it is a turn-key business.

If the business is profitable and successful, and has a good track record, why is it for sale?

[quote]HouseOfAtlas wrote:
There is a business for sale in my area for close to $1 million. This includes the building and business. There is a strong track record of profits in the past years and the company has been around for a long time.

I was wondering if someone knew how much money most banks need for a down payment for something like this.

Any help from someone who has some experience on this subject would be greatly appreciated.[/quote]

It depends. Most likely, the bank will view it as a real estate loan secured by the property and repaid by the cash flow of the business (this is also the structure that would probably make the bank the most comfortable, because they will have the real estate).

You will need to show at least three years of positive cash flow, and be able to demonstrate enough cash flow going forward to cover the debt service (principal and interest) by at least 120%.

In a commercial real estate deal, most banks will lend against 80% (ballpark; it varies) of value/cost i.e. you will contribute $200,000. The bank may also ask for a personal guarantee from you, so the stronger your personal financial situation, the better.

Also, any case you can make about your track record as a business owner will be helpful.

I do this for a living, so if you have any questions please feel free to PM me.

[quote]tmoney1 wrote:
If the business is profitable and successful, and has a good track record, why is it for sale?[/quote]

There are many valid reasons that a person wants to sell a good business. Just because a business is for sale doesn’t mean that it’s not profitable or worth buying.

As with a previous poster I sell businesses for a living. The rules in Australia may be different to where you are, but most lenders here will lend 80% on the real estate and nothing on the actual business unless it’s secured by something else. The reasoning is that they want tangible collateral that they can take and sell if your business goes belly up. If you can get the loan based on cashflow of the business without having to put up additional security then that’s great.

[quote]tmoney1 wrote:
If the business is profitable and successful, and has a good track record, why is it for sale?[/quote]

The old man wants to cash out and go fishing. Happens all the time.

[quote]Fonebone wrote:
tmoney1 wrote:
If the business is profitable and successful, and has a good track record, why is it for sale?

The old man wants to cash out and go fishing. Happens all the time.[/quote]

Your exactly right. I bought a company from an owner who ran it very well. He was ready to retire and cash out.

An ongoing business is a great investment. Startups fail frequently.

The 80% is a good rule of thumb. If you can’t raise the $200K maybe the owner will offer some terms or a seller financing.

Why don’t you go to the bank that you deal with, and particularly to the one your partner does his banking business with.Dress up, act serious, and ask the president what they would require.

If you can swing it, they will want a real business plan complete with how they are going to get their money back and how you are going to live at the same time. Be prepared to get an SBA approval, as banks simply don’t lend to purchase businesses without them. Always remember, it is their game, they have the money and call the rules, and don’t get flustered at the endless red tape.

Also consider, owner financing. And for goodness sakes, get a legal partnership. You are going to marry this friend(in a business sense). Like the saying - good fences make good neighbors.

So the business and the building are only 1million together? Wow, how big is the building and how good of shape is it in? What is the equipment like?

First off, I appreciate all the help guys. I really do :slight_smile:

I plan on looking over “the books” hopefully soon after signing the non-disclosure forms.

The building does need some work. It’ll need a new flat roof and I know that is expensive, so we’re hoping to drop the price. Plus, it needs some Hammer Strength machines and maybe even make one of the racquetball rooms “powerlifting friendly”.

Our mentor will use his influence at the bank and will be the one making the deal with the broker. He’s putting his foot in the door for us as we walk in :slight_smile:

The only bad thing is (I just found this out) there is “talk” about a big commercial gym being built in the area. It could be only a mile away or it’ll be down the highway about 5 miles. I would assume that the gym I want to buy could lose 50-60% of its customers.

I know there is the same commercial gym in the neighboring city and there are a few smaller gyms within a few miles of the big one and they have a strong membership.