When you’re selling your business, your buyer will often need finance. If your buyer is in their 30s or 40s, it’s quite likely that they already have a massive mortgage. Banks like owner-occupied and will lend you a much larger proportion of a house’s value than you can get on almost every other asset – plus they’ll charge you lower interest rates. New Zealanders in their most productive years are steered firmly towards buying their own houses, which is probably a great idea in principle, but leaves them with little to invest in even a highly profitable business.
If your heavily-mortgaged buyer then wants to buy your business, the bank’s default answer will be ‘no’. That’s because saying no requires no risk, almost no paperwork, and very little effort. This is a shame, because there are private businesses available for sale that are superbly profitable and would deliver higher returns than any rental, with total returns even higher than the equity growth in the average homes.
With money being pumped into real estate as a priority, it makes it difficult for younger New Zealanders to invest in business. This problem is here to stay and has the potential to hamper business growth – which is, after all, what really drives economic growth and prosperity for everyone.
I’ve recently been helping a client find ways to finance a staff member who wishes to purchase the business. By working with the bank, the buyer and the vendor, together we’ve pulled together a way to make it happen – matching a happy vendor with a highly skilled staff member who will do a fantastic job.
This has been a challenge, but I believe it’s worth putting in the time and effort to show the bank that it will work. The default answer from the bank will always be ‘no’ if you don’t take the time to really build your case. It’s the easiest, least risky option for the lender. You need to make it easy for the bank to see the ‘yes’. That means lots of number crunching, lots of forecasting and a compelling story. The right business, the right deal and the right lender can be the ultimate win-win-win story – more jobs, more money and the bank makes a profit. You can help the bank see the ‘yes’, but don’t expect it to be quick or easy.