Working the numbers
If looking to finance the purchase of your new business below are some broad guidelines to assist.
It is advisable to speak to your preferred lender early in the process to ensure finance will be available as typically financial institutions have different lending criteria compared to financing a house.
If you have any further questions, let us know using the contact details below. We look forward to hearing from you.
Self-Funding – Cash
The simplest method of financing your business is if you have the available capital to purchase outright. This does not need to include the purchase of a vehicle, as they can be financed through other means (which in many cases is far more effective from an accounting/tax perspective).
We recommend you discuss this option with your accountant/financial advisor.
Also remember in addition to the franchise purchase price you will have your own accounting/legal fees to pay.
GST is payable on the purchase price however this can be claimed back in your first BAS return.
Self-Funding – Equity in Assets
For most people, our available capital is tied up in our property. Spending years paying down our home loans means we are “cash poor” but “equity rich”.
Many business owners evaluate tapping into the equity held in their assets and refinancing their house loan to fund the purchase, normally this will also have the lowest interest rate.
The interest cost on the business loan portion should be tax deductible, check this with your accountant.
Enquiring with your financial institution (bank) will provide some guidelines as to what options are available to you.
Many people are surprised that business loans are very different to your normal home loans. Where 20% deposits are normal for home loans, business loans can start from 30% deposits, but are more likely to require more than 50%.
And all of this is based on your current financial situation. Not what ‘potential’ the business has.
The terms of the loan could be Secured or Unsecured. This will influence the interest rate, LVR (Loan to Value ratio) and fees that you pay. Things to consider are:
- Loan terms of 5 years, linked to the franchise agreement
- Some offer residential property as security for the loan
- Interest rate & Fees associated
- Loan flexibility
Frequently Asked Questions
Does Pristine Water Systems recommend a specific lending institution?
No, your current bank may be your preferred option as they will have your financial history. If you have a property with an existing mortgage it may be a simple process to increase the existing loan. This will also probably be your lowest interest rate option.
What do I do if the bank asks for financial information?
Ask the bank for a list of specific requirements (what they require to assist processing the loan) and discuss with us. Various banks will have different requirements.
How do I finance the vehicle?
If you require finance for the business you may also be able to include the vehicle purchase in the loan. Vehicle finance is generally easier to obtain with many lending institutions available to you including the dealer you purchase the vehicle from. It would also be prudent to discuss the options available with your accountant.
Will I earn enough money to pay the loan ?
Other franchisees in the group have also borrowed to fund the business and vehicle purchase and they are trading successfully. Remember you are not the first to buy a territory, most of the franchisees started the same way as you will and now have profitable businesses. There is also a minimum income guarantee paid for the first 24 weeks for new Franchise Regions to assist during the start-up phase.