So you've decided to take the plunge and become self employed. Among many of the questions about buying a business that quickly comes to mind are can I afford to buy it and how do I finance it?

Whilst the bank advertising suggests that they are open for business and keen to lend, the reality is that since the GFC they have tightened their lending guidelines to the point of almost being closed for business apart from housing lending.

Picking which bank to apply for credit is the first issue. All banks are not equal when it comes to the finance of a business purchase. They all have their preferred industries and some have strong ties with some franchisors. This originates from where master franchises bank and to keep those accounts, banks offer preferred credit arrangements to potential franchisees. For instance, whilst not a franchise, the ANZ Bank offer a better deal for the purchase of an IGA supermarket. It is not a coincidence that Metcash (the owner of the IGA brand) bank with ANZ. Although it is not uncommon that a bank will lend against the goodwill of a business, the ANZ will lend 50% against the goodwill of a supermarket purchaser, not including stock.

A rule of thumb is that whilst on occasions banks will take a debenture charge over plant and equipment, in most cases collateral security will be required. In other words, if you are buying a small business you will be required to put up the family home or some other investment property as security to obtain the loan.

As mentioned previously, due to the fact that the banks are not keen lenders it is important that you present your finance application in the right manner. A competent finance broker (not one that just deals in housing loans) can be of great help. Your accountant will also be required to assist with a business plan, which is also generally now a bank requirement.

In general, if you have found the right business for you, speak to your business broker who will be able to help guide you in which financial institutions to approach for finance. Raine & Horne Business Sales have, over the years, built a rapport with most of the financial institutions and may be able to help guide you to the bank that may support that particular industry. We can also discuss your options in choosing a finance broker who may be right for you to enable a smooth transition from making that offer to buying the business that fulfills your dreams of financial success.