Often many people aren’t aware that at KPM we also can assist with Business Lending (buying into a business, buying an established (existing) business, or even buying something new (a franchise).
The reason many people aren’t aware we do this is that it is not common for mortgage advisers to assist in this space, but due to the large amount of self-employed clients & business owners we work with - it’s something we do quite regularly.
Broadly speaking there are two main ways our clients finance business purchases:
Typically if a business has sufficient merit the bank will be willing to fund against the cash flows & performance of the business, or the assets of the business, or both. This is known as a GSA (General Security Agreement) lend where basically the bank takes a guarantee over the business, and also a personal guarantee from the directors.
Because this lending is deemed “unsecured”, the lending criteria can be more focussed on business performance itself and also often has higher rates and shorter loan terms. At the time of writing, common pricing for this might be a loan fee of 1% of the loan amount, with fixed rates in the 9%’s and floating rates around 11%. Typically you’d have this over a 5 year principal and interest term. Lending like this is usually around 50% LVR, but can go up to the mid 60%’s.
It’s common also in this space for mortgage advisers to charge a fee as many lenders don’t pay commission for business lending. If a fee is charged, it is usually 1% of the loan amount.
Basically if you own your own home, and your mortgage is less than 80% of its value, OR you own a rental property and the mortgage is less than 65% of its value, then the difference is your available equity. Assuming you meet other criteria (usually income related) you could borrow this amount to put towards a business purchase.
In this option because the lending is secured against a residential asset (the property), the funding options are more flexible. You can get the whole purchase price if you wanted (assuming you had enough equity), and you also can have:
Many people tend to prefer the second option, but there is certainly the possibility of both in the current lending environment, and you can also do a combination of the above if you need to.
For business applications you generally need the same info you’d need for a mortgage, plus also:
If you’re interested in purchasing a business, get in touch today to see how we can help.
Ryan Smuts
18 October 2023