My Client Bought a Gym – Here’s How We Financed it
My Client Bought a Gym – Here’s How We Financed it
Our clients recently purchased a 24/7 franchise gym. In fairness to them I won’t mention the brand or location, but you’ll have heard of them. Not every deal has mountains of cash or equity in property, in fact this purchaser had no property, nor mountains of cash. So how did we do it? Let’s dive in:
1. Researching Options
This is where we start on all deals. In this case, we were looking for a bank that would lend up to 90% of the purchase price secured against the business assets and goodwill. This involved shaking our tree of over 45 lenders to see which banks fell out of the bottom and although this was not going to fit with a lot of banks, a few good options presented themselves.
2. Security
This is key, it’s risk versus reward for the bank so you need to give them comfort around the fact that the loan is safe and can be paid back. The assets made up 50% of the purchase price and this gym had a long trading history of consistent profits.
3. Repayment
Sometimes called cover, the banks will look at (and you should to) how the loan repayment will impact the cashflow of the business and will want to build in a buffer of safety to ensure that any revenue drops, rate increases can be managed. Personally, I think you should double the repayment (2 x cover) but in this case they were happy with anything over 1.5x cover.
4. Buyer experience
This is critical, don’t expect a high loan to value ratio like this on a business purchase if you have no experience in this field. This buyer had experience in managing gyms and we built a case around this to give the bank comfort.
5. Personal Savings and Assets
There is no escaping it, the banks want to see you can manage your personal finances properly and have some “hurt” money to put into the deal. In this case we actually ended up funding 100% of the purchase price and kept the buyer’s savings for business cashflow.
The Final Outcome
A 100% business loan secured against the business at a very competitive rate. Both the buyer and seller are super stoked with the outcome and the loan itself is over a long enough period to be easily managed from cashflow allowing the new owner to draw a good income and re-invest in the business in the future.
Get a great commercial broker on your side (like us). We will help you navigate each of these steps, from structuring the terms, to collecting and analysing the necessary documents. Reach out for a complimentary 15 min chat to discuss your finance options to secure your dream business.
Tags: buying finance small business
