Most business lending is sized against the security. It should be sized against the cash flow.
A bank looks at what it can take if things go wrong. That is a rational position for a lender and a poor starting point for a business.
The result is familiar. The facility is limited by the value of the house rather than the strength of the trading business. Personal guarantees are given without much thought about what they expose. The debt is structured against an asset that has nothing to do with the operation it is funding. There is usually a better arrangement available. It is rarely the one that arrives by default.
Acquisition
Buying a business, a competitor, or buying out a shareholder. The purchase price is one number. The fundable amount is another, and it is determined by the sustainability of the target's earnings rather than the multiple in the agreement. Normalised earnings before interest, tax, depreciation and amortisation (EBITDA), the quality of the earnings, customer concentration, and how much of the value walks out the door with the vendor. Vendor finance frequently bridges the gap, and it has to be structured so it does not collide with the bank debt.
Expansion
Funding growth is harder than funding an asset, because growth consumes working capital before it produces earnings. The most common error is funding a growth phase with a term loan sized against last year's balance sheet. Model the working capital cycle first. Size the facility against what the business will need next.
Succession
Passing a business to the next generation, to management, or to a partner buying in. Succession funding is a structuring problem more than a lending problem. Who holds the debt, what security is available, how the outgoing owner is paid, over what period, and what happens if the business underperforms in the transition. This is your accountant's and lawyer's territory as much as ours, and it should be run jointly from the start.
Working capital
Overdrafts, invoice finance, trade finance, and revolving facilities. The right option depends on how cash moves through the business. Businesses with long debtor days and short creditor terms have a structural funding requirement, and funding it with a term loan is expensive.
Restructure
Existing debt that is priced badly, structured badly, or secured against the wrong things. Sometimes the answer is a different lender. Sometimes it is the same lender on different terms. Sometimes it is a difficult conversation about whether the debt is serviceable at all, and we will have that one.
Personal guarantees, and what they mean
Almost every business lender will require a personal guarantee from the directors. That is normal, and refusing on principle usually means not borrowing. What is negotiable is the extent. Whether the guarantee is limited or unlimited, whether it is capped, whether it is joint and several across multiple directors, and whether it can be reduced or released as the business performs. Most guarantees are signed in the form they arrive. Some of them do not need to be.
What we do, and what we do not
- We size the facility against the cash flow. Then we work out what security is needed, which is often less than what is asked for.
- We separate the business lending from your home. Wherever it can be done.
- We negotiate the guarantee as well as the rate.
- We work with your accountant. The lending structure and the tax structure have to agree.
- We tell you when not to borrow. If the business has a margin problem, debt will not fix it.
We are not accountants and we are not lawyers. We do not give tax advice, we do not structure entities, and we do not draft agreements. We arrange lending, and we make sure it works with the structure your advisers have built.
Common questions.
Will I need to give a personal guarantee?
Most business lenders ask directors for a personal guarantee. How far it extends is often negotiable, including whether it is capped and whether it can be released later.
Does business lending have to be secured against my house?
Not always. Where possible, we look at lending based on the strength of the business, so your home is not tied to it.
Can you help finance buying a business?
Yes. Lenders look at the earnings of the business being bought, its customers and how the purchase is structured. We help you present that clearly.
What information will lenders want?
Usually recent financial statements, management accounts, cash flow forecasts and details of existing debt. We will tell you exactly what is needed before you apply.
What clients say about working with Carl.
Carl was an absolute pleasure to work with. His knowledge, professionalism and prompt communication gave us confidence throughout our first home purchase. He secured us an excellent deal with Westpac and made the entire process seamless. We highly recommend Carl to anyone looking for a mortgage broker.
Three of us, all self employed, wanted to get a home loan for a shared house. Without the expertise, help and the precise instructions to fill in the various documents or organise specific items we would not have had a chance to get the mortgage over the finish line. Carl was extraordinarily helpful and always found a way to continue this not so easy application. I can highly recommend Carl. Very grateful for his assistance.
Carl was fantastic to work with. Our mortgage application was not straightforward as we were multiple people, all self employed with new businesses. We had tried using other brokers but they weren't able to get our approval across the line. Carl was tenacious with the banks, and had so much knowledge he was able to guide us through all the information we required and how to present it. After a difficult process he was able to secure us a mortgage with very favourable terms. I couldn't recommend him enough, the effort and work he puts in is second to none!
Carl Mann is a fantastic mortgage broker. He is knowledgeable, professional, and has excellent communication. Carl kept us updated along the way and provided sound advice. I would definitely recommend Carl to anyone needing assistance with mortgage finance or refinancing.
Carl helped us work through the finance for our next investment property without losing sight of our existing lending. He understood what we were trying to build over the longer term and worked through the different options with us before we made an offer. That preparation made the purchase much smoother.
Development finance was very different from arranging a normal mortgage. Carl understood the feasibility, valuations, build costs and timing the lender needed to see, and helped us get everything organised before it went to credit. Having someone who understood the development side of the deal saved a lot of back and forth.
We were purchasing premises for our business and needed someone who could look at both the property and the strength of the business behind it. Carl worked through the numbers with us, explained what the lenders would focus on and helped structure the application properly from the start.
Bring us the business.
Financials, the facility you have now, and what you are trying to do. We will tell you what is achievable, what security would be needed, and where your existing arrangement is worse than it needs to be.
Every conversation is confidential.
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