£125,000 funding to buy an established accountancy firm
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Cutting the cost of buying a practice
Banks and other lenders can be eager to lend to an established business, and to provide funding for an experienced business owner ready to launch a new venture.
However, they may be less enthusiastic when the borrower has not owned a business before. This lack of enthusiasm can result in a higher rate - because they see lending to someone with a lack of experience as a greater risk, and ask more for the loan to safeguard themselves.
At Rangewell, we can help you find solutions that can cut the cost of buying an accountancy practice - even if you have never run a business before.
Our client was an accountant who had 13 years experience of practice - and felt that the time had come to go into business for himself.
Recognising the challenges of setting up a new practice in a sector that is already well served, he decided that buying an existing practice was a more prudent approach.
He was fortunate in hearing about a practice close to his home with a good client base - and an owner who was keen on retiring.
However, he had no capital that he could call on.
“I had been working for another practice for years and I began to realise that, unless I did something soon, I would have left it too late to start building up a practice of my own. But the cost of a family and getting on the housing ladder had left me with little in the way of savings. I was going to need some real help if I was going to afford to take over the practice - and I knew it was now or never.”
He knew the Rangewell service and had recommended us to several of his clients. He approached us to see if we could help.
“I had worked with the Rangewell team in the past when I had clients who needed business funding. They were always helpful, and had come up with funding when most lenders had turned my clients down - so I started wondering what they could do for me.”
With no deposit, raising the £125,000 required to buy the practice looked to be a problem. Most lenders expect to see a contribution or deposit from a potential borrower as a way of demonstrating their commitment, and are unwilling to look outside their set lending criteria. With our knowledge of the entire lending market, we are able to find solutions when other financial providers cannot. We were sure that we could find a solution.
We saw that an EFG might provide the help required.
What is an EFG?
The Enterprise Finance Guarantee is a UK government-sponsored scheme intended to help smaller business owners access finance that might otherwise not be available, simply because they lack the necessary deposits.
The scheme is particularly suited to new business owners who may be struggling to secure finance, by facilitating bank loans of between £1,000 and £1million. Under the scheme, the Government meets any bad debt costs incurred by the lender on the scheme loans. The borrower pays interest and fees to the participating bank on normal commercial terms and, in addition, pays a quarterly fee to the Government of 2% of the total loan.
With an EFG in place, businesses unable to obtain finance because they fail to meet a lender’s normal security requirements can stand a better chance of securing the funding they need.
We helped the accountant with the necessary application.
With the EFG in place, we were able to find a high street bank who was able to advance the £125,000 required at 5.49%. The EFG would also require funding, at 2% of the loan arranged.
The accountant was able to take over the business and, when he has established its profitability with two years of accounts, he will be able to renegotiate the loan, and drop the EFG. We believe that we will be able to reduce his rate even further when that time comes.
At Rangewell, we help accountants find answers to their own funding needs as well as those of their clients. Our service is independent, fast and absolutely free.