Business Mortgages and Banks and their vagaries
Business Mortgages can be a minefield for people looking to buy a new business.
Shop around for the best deals and options before you even look at a business, there is no point in trying to buy a business without knowing the precise parameters and conditions that the mortgage company requires, many differ in their essential criteria or they can increase the deposit or the interest rate for certain businesses, which they consider high risk.
The commercial agents will have at least one mortgage broker to propose and they are also paid a commission for promoting them.
Avoid paying any up front mortgage investigation fees.
Try all the high street banks, they have commercial mortgage divisions, in these recessive times very few are assisting small businesses, as I discovered in a chat with one of my not so friendly bank managers.
If you do go with your local bank, always have a second bank account with Giro or ideally another high street bank.
Always keep the second bank in credit and in use for specific activities, if the first bank with your mortgage or overdraft gets difficult then you can switch to your second account and transfer your borrowings, especially if it has always been in credit.
If you have only one account, trying to set up another account if you are not satisfied with your main bank, it is almost an impossibility with reasonable charges, if you have an account in credit they welcome you with, not quite, open arms.
At the moment High Street Banks are very wary of catering and property development businesses, specialist brokers are probably your greatest source until this credit crisis is over,
You will need to produce a business plan at some stage to get a mortgage.
You can only do this when you have some idea of the business takings, with the flow pattern during the year.
Draft out some ideas and then consult your accountant, if nothing more than to authenticate your projections or if you are having trouble getting them into a professional and acceptable shape for a bank or mortgage provider.
Business Link can provide you with a considerable amount of information on starting or buying a business, they normally can supply Business Plan drafts, be warned these are designed for most businesses and you need to delete the sections that do not apply www.businesslink.gov.uk/bdotg.
It can pay to do two projections - one realistic and one optimistic. If you find that you are exceeding the realistic projection and moving toward the optimistic one then you can forward plan any future development.
Again I would suggest a graph with both projections for easy identification of the takings flow against the actual takings as they come in.
The mortgage company may insist on the equivalent of a Pinder Report or similar. This is an independent assessment of the potential of the business.
They are not cheap but may be essential if you are close to your borrowing capability.
If you are considering a lease as a cheap option to leave your capital intact, you may find that the actual mortgage repayments on similar type properties are cheaper than the rental payments on a lease with the deposit on the freehold equating to the purchase price for the lease.
Should your new business be a totally new or run down business, with a view to building it up, ensure that you have sufficient reserve capital to survive at least six months negative trading, this may sound excessive, but the sobering reality is that you have to generate a NEW market or take business from other businesses who are in all probability well established.
Don't let your heart rule your head, it may be a very personal business, but it ceases to be personal if you get it wrong.
An old adage is "Marry in Haste and Repent at Leisure", buying a business is exactly the same.