With the tightening of lending in Australia in recent years, and its impact on business sales, Joe asked Don Farquharson, Principal of All About Loans, what “outside the square” financing options are available to support business sales…

Don replies:

Traditional funding lines are usually limited to the value of ‘bricks and mortar’ security. Businesses, even those with strong cash flows, often have their finance options severely restricted.  Their growth can also be severely limited because there just isn’t sufficient value in mortgages on houses and premises.

Vendor finance, whilst not always ideal for a seller, is an option. The seller’s risk can be mitigated though with a contractual commitment from the buyer, when entering into the sale contract, to raise alternative funds immediately after settlement.  This can be done through debtor finance and funding against the plant & equipment and vehicles of the business. These funds can be used to immediately reduce the level of debt under vendor finance.

Debtor Finance is a fluctuating funding line secured by the business debtors.  This approval can be provided prior to the business sale being completed, and actual funding levels determined on the debtor book at the time of hand over or settlement.  Funding can be made at the time of settlement or shortly after.

In addition, funding against plant & equipment and vehicles can free up cash to assist with funding of the purchase of business goodwill.

Any successful business owner knows that maintenance of positive cash flows and liquidity is vital to success.  This is especially important with a new owner.  When these businesses need to purchase or import both finished goods and raw materials, specialist funders can provide finance against the contracts to complete those transactions.  Inventory Finance allows the business to fund the full production / delivery cycle and to maintain their cash flows and liquidity.  More importantly, they don’t need to provide ‘bricks and mortar’ traditional securities.  Further financial assistance through this means may help the business grow and therefore reduce the chances of default under the vendor finance arrangement.

Lastly, when purchases require the acquisition of commercial premises, there are funders who can achieve these purchases through the business owner’s self-managed super funds, freeing up valuation cash reserves held in super funds.  These purchases need to have a written investment strategy.

Don Farquharson is a lending specialist in the areas of debtor finance, inventory finance and trade finance. He is focused on ensuring that business owners have enough working capital to maintain and grow their businesses. For more information, Don is contactable on 07 3252 5208 or email [email protected]

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The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Small business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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