bizfinance

NZ Business finance FAQ’s

1. How much business finance can I borrow?
2. What interest rates and terms can I expect?
3. Are there other things that can impact on how much I can borrow?
4. What security or collateral can I borrow against?
5. What if I have no house and very little cash?
6. What do banks require?
7. Why use Financial Service Providers?
8. How much does it cost to arrange business financing?
9. What do I need to do to apply for business financing?
10. How long does it take to process an application?
11. How best do I go about securing business finance?
12. What if I haven’t found a suitable business yet?
13. What happens once my loan has been approved?
14. What other areas can Financial Service Providers help me in?

1. How much business finance can I borrow?

We specialise in arranging business finance for all types of businesses and work with you to place your loan with the best lender we can find.

The amount lent to any given person or organisation is usually limited by the collateral they can provide and their ability to repay the loan. The larger the loan, the more security required and the greater the repayments need to be.

Generally speaking banks will lend between 40 to 60% of the purchase price of the business. If it’s a well recognized franchise it could be at the upper end of this or even a little more. Lending will depend on a number of things, like the type of business, its cash flow, history, and your experience to operate such a business. Also the mix of plant, stock and goodwill will play a part in determining how much they will lend.

For the likes of a Commercial building, Motel, Hotels etc. (land and buildings), banks tend to lend 50 to 65% of the valuation. The more secure the asset, the better the cash flow then the more favourable their evaluation.
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2. What interest rates and terms can I expect?
The interest rates and your bank fees are negotiated and will be the best we can source. Business finance is usually slightly more expensive than housing finance. Your repayment terms will largely depend on the strength of your application and security offered. We will shop key lending institutions to get you the best possible deal for your consideration.
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3. Are there other things that can impact on how much I can borrow?
Lenders will look at your assets and liabilities as well as the assets of the business. They will then consider the debt servicing ability of the business and any other outside income you can introduce or debt you are currently servicing.
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4. What security or collateral can I borrow against?
Houses are great – Banks will usually lend 80 % of the value of your home and or rental properties. This often becomes a good option as borrowing against the residual equity (value of house – debt) in your home can be more attractive as residential rates are more attractive than paying business finance rates.

Life Insurance Policies – can be used as security if they have a “cash surrender” value. We will need to obtain a copy of the policy showing the policy number and cash surrender value.

There are few lenders who will consider plant and equipment for security, and these are unlikely to go to 65 or 70%. Let us know what other assets you have.
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5. What if I have no house and very little cash?

Your options will be very limited, as banks have requirements that must be met. You may be able to get someone to act as guarantor for your loan, or even have the vendor leave money in the business.
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6. What do banks require?
Things you need to obtain and the banks will require are;

  • What type of business is it.
  • Information as to the businesses trading history (ability to service borrowings) Generally the last three years Profit and Loss statements (now called Statement of Financial Performance) and the latest months trading since balance date.
  • Asking price (Fully broken down i.e. Land and Buildings, Plant and Equipment, Fixtures and Fittings, Vehicles and Goodwill
  • The amount you are looking to borrow
  • Cash or equity you have and security you are willing to supply.
  • Skills you bring to the business i.e. your brief CV and the CV of any other directors being appointed.
  • The completed business finance application – we will provide you the form on request.

Business finance is a complicated field and many have difficulty in getting it right. For this reason most mortgage brokers steer well clear of this area. It can also mean very little or no reward. When FSP arranges finance we charge a preparation fee of $500 and a maximum fee of 1.5% of the total finance or loan drawn down (which may include residential lending as part of the lending package arranged). FSP will credit the upfront $500 and any funds received by the lender from the fee payable should the loan be drawn down.
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7. Why use Financial Service Providers?

  • Experienced brokers specialising in business banking and lending.
  • Secured over $102 million in loans over the last 60 months.
  • Understand businesses – act as business mentors.
  • Know how to do the deal – will structure it to your advantage.

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8. How much does it cost to arrange business financing?
Depending on the lending institution – but generally if we arrange finance for you, our fee is 1.5% of the amount drawn down, less what we can arrange the lender to pay us. We do charge a $500 ‘preparation fee’ which will be credited against the fee payable should the loan be drawn down.
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9. What do I need to do to apply for business financing?

To apply for business financing you need;

  • To be a New Zealand resident
  • Over 18 years of age
  • Have acceptable security and or collateral

You also need to have identified the business you wish to purchase and know how much you need to borrow, along with a breakdown of the price and the last 2 years trading history.

If you have these, you can enquire about business finance now, and we will work with you to formulate your application.
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10. How long does it take to process an application?
We’re fast and efficient, and rely on you providing the correct information required by the lending institutions – once we have this it can happen within days. Prior to this we can let you know what to expect given your application and the amount being sought.
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11. How best do I go about this?
Having identified your business and how much you may need, complete our no obligation enquiry form and we’ll contact you so we can better understand your needs and situation before we forward you a Finance Application form.
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12. What if I haven’t found a suitable business yet?

To prepare a finance application you need to know what you are dealing with, therefore once you have a rough idea of how much you can spend on a business it’s best to get busy. Search business for sale websites and other mediums, once you have found a suitable business and have done your homework you can then make an offer subject to suitable finance (this is our area of expertise), and any other necessary conditions including a period for due diligence just to make sure all is as presented.

We can’t get pre approval for you as the business being purchased is critical to the process.|
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13. What happens once my loan has been approved?
Your business finance broker will arrange a time and place that is convenient to you to explain the options, how they have been structured to best suit your situation, and recommend your best option. Once you are happy with what’s on offer you can sign the loan contract.
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14. What other areas can Financial Service Providers help me in?

  • In how the business is structured.
  • How does taxation impact on you, your business, any trusts or other entities you have, we can provide advice and some options before you talk to your accountant.
  • Identifying what the risks are of being in business and what options you have to protect against the risk, i.e. Debtor insurance.
  • Help with structuring your business plan and getting SMART goals in place that are easy to action.
  • Getting your cash flow monitored and compared to your forecasts.

Financial Service Providers wrote the book on “Owning your Own Business” and “What Do Banks Want” and are only an email or phone call away to answer any of your questions. If you wish to enquire about getting finance for an existing business or franchise please enquire here for business finance.

Alternatively if you own a business and are looking for working capital, or to buy additional plant or need help establishing a new business then please click here.
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