Alternatives to vendor finance
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Making A Buy-in Affordable
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If you're considering buying a business, the question of how you will pay for it looms large. Seller funding or vendor finance is one answer - but alternatives exist which could cut your costs.
Buying a successful business will, inevitably, be expensive. However, the seller may not expect to receive the entire purchase price upfront as a lump sum. If fact, he or she may even help you fund the deal. Vendor finance, or carryback, is a loan the seller of a business gives to the new buyer to cover all or part of the cost.
It can make businesses easier to sell and increase the final sum earned by the seller. It can also mean buyers can find it easier to buy - although it may mean increased costs.
Seller financing will usually only cover part of the agreed price. That means buyers must make up the difference, often 20-30% or moreover an agreed period with regular repayments. The rate of interest will be agreed as part of the sale, and can commonly be anywhere from 5% to 10% or more.
It can be an expensive way to borrow money but if, as a buyer, you cannot meet the lending requirements of banks, it may be the simplest solution.
However, even if you believe that lenders will not be able to help, there may be solutions which could provide the cash you need to buy a company which would offer more affordable, and may even let you negotiate a better purchase price.
Private Equity investment
Private Equity firms may be able to advance funding for a business purchase. However, in return for their funding, they will want a share in your business and its profits. They will usually want to cash out altogether after a set time - often 5 years - which will mean you will need a new source of capital to buy back their share.
Virtually any level of funding can be provided, but most will include stipulations about how the company must be run and may include financial and other objectives to meet. If things don’t go to plan, it may mean running the risk of losing control of your business.
Asset Refinance could allow you to raise a substantial amount of cash without the need for external investors. It works by leveraging against the assets already in the company.
This means taking out a finance agreement on the premises, stock and equipment that the business already owns. The sum raised is then used to help buy the business, and repayments are made on the assets until the loan is paid off, and they become the property of the business once more.
Using the assets of the company to buy the company itself can be a particularly effective solution for those businesses with a large investment in plant and property, and if a Commercial Remortgage is used on business premises, the costs can be repaid over up to 20 years.
A straightforward business loan may provide sufficient cash to replace vendor finance. Business lenders may offer Unsecured Loans, repayable over three to five years, or a larger scale of lending and a longer term with a Secured Loan, with the security provided by other business assets, or frequently by the borrowers home. A Secured Loan can offer lower rates as well a longer repayment term, and depending on the security offered can provide any level of funding.
REAL EXAMPLES OF WHAT WE CAN DO
Source a loan to make up the shortfall when buying a furniture business from a retiring owner
Find the most competitive Asset Refinance deal to allow the acquisition of a specialist printer
Help two dentists arrange ‘Jigsaw’ Funding to acquire an existing practice, and allowing the incumbent to be paid off in full
Find a combination of equity and lending to acquire a London accountancy partnership
Set up funding that would reduce the purchase price of a garden centre, compared with a staged payment agreement with its owner
Getting the funding you need
In practice, because of the scale of lending required, it may be necessary to arrange a package of funding that combines several sources of credit to raise the sums you need for a business purchase.
At Rangewell, we are experts in arranging this kind of bespoke ‘Jigsaw’ Funding. Because we can work with lenders across the entire market, we can source the most competitive lending for each element in your jigsaw, and combine them into the funding you need.
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Our goal is very simple - to help businesses find the right type of finance as quickly, transparently and painlessly as possible.Find Funding
Helping you build your profits
Lending tailored to your needsAt Rangewell we can combine several funding sources to help you raise large sums in ‘Jigsaw’ Finance.
Cutting the costsOur expertise can help you find the most cost-effective solutions - cutting your overall costs.
For any scale of business acquisitionWe can help set up solutions for any size of business, from tens of thousands of pound to tens of millions.
NegotiationAvoiding the need for vendor finance can improve your negotiating position and reduce your costs.
A fast serviceSometimes it may be essential to move quickly. We can provide funding in days rather than weeks if required.
Specialist lendingAt Rangewell, we cover the entire lending market. We can help you find the most appropriate lenders for your sector, and cut costs.
Download Rangewell’s free and detailed guide to Finance for Buy-Ins and Buyouts
What types of finance are there - which do you need?
Why not all providers are equal - finding the one that’s right for you
How we can provide an additional income stream
The downsides to finance - and how to avoid them
How to arrange finance - what paperwork do you need?
Key terms explained
Can I find finance to help with cash flow?
How can you finance your management buyout (MBO)?
Do the management teams have any bearing on being accepted for finance?
Will a private equity firm be involved to run the business?
Getting the right funding arrangement is essentialThere are many forms of business finance available. Getting the most appropriate type for your particular needs is essential to avoid excessive costs.
Your key equipment could be at riskIf you are unable to keep up repayments on an Asset Refinance agreement, the equipment your business depends on could be could be at risk.
Long-term financial commitmentsYou may not be able to pull out of a finance arrangement once set up.
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