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Old 04-14-2012, 01:24 AM
 
14 posts, read 37,133 times
Reputation: 13

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Let's start off by saying I'm 22 years old about to graduate from college in may with a b.s. In finance. From what I've seen I probably won't get a job anything soon and looking for other options. A friend of mine works at this business that's now up for sale because the owner wants to move to LA and according to my friend has alot of other investments and wants out of the business. The owner says he wants 300k for the business and states he comes out with a net profit of 150k a year with all the paper work verifying that he profits that much. Now being a soon to graduate college student I am 40k in debt from student loans, and 6k in credit card debt. I am currently employed part time and have worked at my job for 4 years with a salary of 15k. I have about 5k in my savings acc. Also I live home with my parents.
This business looks very promising and rewarding but of course I need the 300k. What are the chances that a bank or SBA would let me borrow the amount with proof that I will be able to pay back the amount in a timely manner? Thanks.
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Old 04-14-2012, 04:02 AM
 
10,868 posts, read 41,128,193 times
Reputation: 14009
Quote:
Originally Posted by Anthony1989 View Post
Let's start off by saying I'm 22 years old about to graduate from college in may with a b.s. In finance. From what I've seen I probably won't get a job anything soon and looking for other options. A friend of mine works at this business that's now up for sale because the owner wants to move to LA and according to my friend has alot of other investments and wants out of the business. The owner says he wants 300k for the business and states he comes out with a net profit of 150k a year with all the paper work verifying that he profits that much. Now being a soon to graduate college student I am 40k in debt from student loans, and 6k in credit card debt. I am currently employed part time and have worked at my job for 4 years with a salary of 15k. I have about 5k in my savings acc. Also I live home with my parents.
This business looks very promising and rewarding but of course I need the 300k. What are the chances that a bank or SBA would let me borrow the amount with proof that I will be able to pay back the amount in a timely manner? Thanks.
What "proof" would it be that you'd present to the lender?

At this point, you've indentified that you have:

1) Substantial personal debt

2) Minimal assets of $5K

3) a 4-year track record of working a minimum wage job

and you've presented nothing that suggests that you have expertise or experience in the business that you're looking at buying.

Nor do you appear to have operating capital.

A conventional lender will want to see that you can secure the loan with assets that can be readily converted to pay off the debt and/or other income that can make the payments outside of the projected cash flow of the business.

What do you bring to the table to secure the loan? What will you invest in this business? Do you understand "skin in the game"?

With the scenario you've presented so far, the chances of a conventional loan are ZIP.

FWIW, go to a bank and ask them for a business loan application. Visit with a banker and find out what they require for your financial ability to borrow any money from them to go into business. I wouldn't be surprised if they want to see you invest 45% of the purchase price, have operating capital, a viable business plan, and resources/assets to secure the note on top of that. Projected cash flow doesn't qualify as resources/assets.

What strikes me as alarming is that you claim to have almost completed a BS in finance and don't have a grasp of the economics of buying and operating a business ....

Last edited by sunsprit; 04-14-2012 at 05:22 AM..
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Old 04-15-2012, 04:32 PM
 
Location: Baltimore
1,759 posts, read 4,261,001 times
Reputation: 1192
Quote:
Originally Posted by sunsprit View Post
What "proof" would it be that you'd present to the lender?

At this point, you've indentified that you have:

1) Substantial personal debt

2) Minimal assets of $5K

3) a 4-year track record of working a minimum wage job

and you've presented nothing that suggests that you have expertise or experience in the business that you're looking at buying.

Nor do you appear to have operating capital.

A conventional lender will want to see that you can secure the loan with assets that can be readily converted to pay off the debt and/or other income that can make the payments outside of the projected cash flow of the business.

What do you bring to the table to secure the loan? What will you invest in this business? Do you understand "skin in the game"?

With the scenario you've presented so far, the chances of a conventional loan are ZIP.

FWIW, go to a bank and ask them for a business loan application. Visit with a banker and find out what they require for your financial ability to borrow any money from them to go into business. I wouldn't be surprised if they want to see you invest 45% of the purchase price, have operating capital, a viable business plan, and resources/assets to secure the note on top of that. Projected cash flow doesn't qualify as resources/assets.

What strikes me as alarming is that you claim to have almost completed a BS in finance and don't have a grasp of the economics of buying and operating a business ....

In other words, about a 0% chance.
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Old 04-15-2012, 08:52 PM
 
Location: East of Seattle since 1992, originally from SF Bay Area
28,382 posts, read 50,562,503 times
Reputation: 28610
Do not accept the "paperwork" showing $150,000 profit. Anyone can produce a fake profit/loss statement. I would demand to see proof of the last 2 years income tax returns. Even those can be faked so you must get a copy mailed from the IRS by the seller's request. Lenders will require 20% down for qualified buyers, in your case I would expect them to require more since you have no business experience.
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Old 04-16-2012, 08:13 AM
 
Location: Wartrace,TN
5,269 posts, read 8,216,301 times
Reputation: 10372
Hemlock has a very good point, EVERYTHING can be faked.

I was reading through the Craigslist "Financial services" listings and saw an amusing advertisement for "Novelty tax returns" and the business was offering faked tax returns, w-2's, 1099's ect.....

I could prepare a business tax return right now showing anything I wanted. I can produce a fake W-2 or 1099 in minutes (But I won't because of the ethics involved)

Same thing with accounting records- anyone with access to an accounting program can set up a "company accounting file" and within hours have credible looking business accounting records showing any kind of profitability you want. The only accounting records I would trust are fully Audited records by an independent CPA that YOU hire. I would also demand two years of bank statements from the bank to verify income.
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Old 04-16-2012, 08:42 AM
 
28,906 posts, read 45,194,930 times
Reputation: 45811
Quote:
Originally Posted by Hemlock140 View Post
Do not accept the "paperwork" showing $150,000 profit. Anyone can produce a fake profit/loss statement. I would demand to see proof of the last 2 years income tax returns. Even those can be faked so you must get a copy mailed from the IRS by the seller's request. Lenders will require 20% down for qualified buyers, in your case I would expect them to require more since you have no business experience.
This. I can't tell you how many times I've encountered people who bought a business based on the company's own income statement and balance sheet, only to find an accounting rat's nest. DO NOT take the owner's word for it when it comes to income and liabilities. I would hire my own accountant, particularly one with a forensic bent to him, to go through the books with a fine-toothed comb, looking at all signed contracts, leases, and other obligations.
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