loan to buy an existing business (legal advice, corporation, bankrupt, finance)

[mainebrokerman]

Originally Posted by foster3097

Any advice as to where to get a loan to buy an existing business. A friend is selling a business for 95K. I have already had the books looked at and everything is good. I don't have any money to put down. Housing prices in my area (CA) are dropping a little. I have a real estate loan officer looking at a loan against my house, but he isn't sounding too optimistic. I will be running the business, will net me 80K a year, and my husband will keep his job (65K) a year. We can live off of the business income and my husband's income can pay off the loan... in 2 years. If I can come up with 50k down, my friend will finance the rest. I know he wants to sell and retire, so that is my last resort. I would still need the 50K down. Any suggestions?

selling a business for 95k , and net 80 k??

is it a brothel?

[cpg35223]

Originally Posted by foster3097

Any advice as to where to get a loan to buy an existing business. A friend is selling a business for 95K. I have already had the books looked at and everything is good. I don't have any money to put down. Housing prices in my area (CA) are dropping a little. I have a real estate loan officer looking at a loan against my house, but he isn't sounding too optimistic. I will be running the business, will net me 80K a year, and my husband will keep his job (65K) a year. We can live off of the business income and my husband's income can pay off the loan... in 2 years. If I can come up with 50k down, my friend will finance the rest. I know he wants to sell and retire, so that is my last resort. I would still need the 50K down. Any suggestions?

Here's my suggestion. If you have no money to put down, that means you have no savings. That means you have no business starting a business.

Here's what I would do instead. Work an additional year and save your money like there's no tomorrow. Then, a year from now, use your savings as the kitty to get started. Your friend has waited this long. Another year won't kill him.

[bicoastal10]

Don't take out a loan to buy an existing business. If the business doesn't work out, you'll be stuck with that loan and nothing to show for it. I realize established companies and wealthy individuals take out loans to finance acquisitions, but that's because they're usually sitting on plenty of money and can pay off the loan with ease even if things don't work out. However, if you're just an average individual with an average amount of money to your name, you're taking a huge risk by taking on a loan to finance something that may or may not work out.

Try to start a business from the ground up with the money you actually have and try to make it work that way. If things are working out and you believe you'll need some extra money to expand operations, THEN look into getting a loan.

[vag]

I will appreciate if the knowledgeable forum members can advice on how to get a loan for a business that I am planning to buy.

- Buying an existing frozen yogurt business in a very busy neighbourhood
- The business is currently run as Franchise and has been in operation for about an year and run complete absentee
- The build up cost about 400K (as told to us) and the machines etc. in the store (assets) would cost 175K new (they are still under warranty)
- I plan to buy the store and run without the Franchise to increase the offerings
- Me and wife will be partners in the business. She is currently working full time and I will initially run the place full time.
- We are looking for loan in the shortest time possible.

I will appreciate your suggestion on our situation. We have enough cash in savings to show if needed. Also have money in IRAs but we do not want to use our savings if we don't have to.

Thanks.

Originally Posted by foster3097

Any advice as to where to get a loan to buy an existing business. A friend is selling a business for 95K. I have already had the books looked at and everything is good. I don't have any money to put down. Housing prices in my area (CA) are dropping a little. I have a real estate loan officer looking at a loan against my house, but he isn't sounding too optimistic. I will be running the business, will net me 80K a year, and my husband will keep his job (65K) a year. We can live off of the business income and my husband's income can pay off the loan... in 2 years. If I can come up with 50k down, my friend will finance the rest. I know he wants to sell and retire, so that is my last resort. I would still need the 50K down. Any suggestions?

[Wendell Phillips]

$95k for a franchise frozen yogurt business - are you kidding? Unless you want to lose your home, savings and end up in bankruptcy, I would suggest you forget about this deal.

[vag]

Wendell,

Thanks for your reply. Perhaps you misunderstood or maybe I am missing something here.
The place was built for about 400K (including 35 K Franchise fee, 160K in machines and 20K in fixtures, furnitures etc.).

It has sales of about 250K/year and net of about 50K currently running absentee and no marketing.

I will appreciate knowing why you thought it is such a bad idea? I have not bought it yet and if there is something I should know about this business, that will be of great help.

Thanks in advance.

Originally Posted by Wendell Phillips

$95k for a franchise frozen yogurt business - are you kidding? Unless you want to lose your home, savings and end up in bankruptcy, I would suggest you forget about this deal.

[Wendell Phillips]

The place was not "built" - it was leased, and that subject to a franchise agreement; which is why the bank won’t lend you the money, because there is no collateral for the loan. Restaurant equipment is not worth anything without a lease that is assumable; and even a second mortgage on your home is likely to be "sold out" at the foreclosure of the senior lien when the business founders. The bank may be willing to lend you the money on an SBA loan guarantee; but a franchise business would not likely qualify.

The point is that this deal is a prescription for financial ruin. What, in essence, you are buying is "good will" - "blue sky" - which is as ephemeral as airy nothings. And worse, you would be starting without sufficient capital (viz. at least 6 month’s operating expenses) and in substantial ($95,000.00) debt. When you add it up, it doesn’t make sense - and certainly not dollars and cents.

[vag]

Wendell,

Thanks for your reply. You are right; the lease has to be assumed. From your postings, I figured out that you are an attorney. I have sent you a private message as well.

Thanks again for the valuable advice. If I assume the lease, would it still be a "blue sky" business? It is self-serve yogurt/smoothies etc. business that does not require special skills and has real product that sells. If the sales are not verified, then I will not buy but besides that isn't this like any other retail business? I will be asking for terminating the Franchise agreement as it is too restrictive in nature. The sellers are willing to verify the sales.

Would you say a convenience store with Lotto a better buy? I am looking into it as well.

So much appreciate you sharing your wisdom and experience. Many thanks.

[vag]

Wendell,

My private message did not go through as it allows only one per day. I will appreciate your reply and also request to connect with you.

Thanks.

[Wendell Phillips]

Those are all questions that you need to ask your lawyer. I am not allowed to give you legal advice; I have only pointed out the relevant facts that should put you on your guard.