ForumsFinancing Tips

Save your money.

Buying a business so that you can apply for a loan intuitively doesn't make much sense to me. The idea that a bank or lender will only lend to an applicant thats been around for 2 years is based on the idea that if you've made it 2 years, you have 2 years of financial statements. By purchasing an entity that's been around 2+ years, sure you will technically fulfill that requirement, but what happens when they ask for your tax returns? If someone is telling you that they can get you a no-doc loan, it's likely to cost you a kings ransom. I looked at that website, and noticed that there are no fees to be found anywhere. If they are like the "unsecured loan specialists" that I've encountered, they'll charge huge fees which in many cases will cancel any economic benefit that the loan wil provide.

The other reason that I'm not in favor of buying an aged business is that for most small businesses, the approval decision is based on personal credit, personal assets & liabilities, and business financial statements. In my time as a lender, I cannot cite one instance that I used a business credit report as basis for a decision. If your business has been around for less than 2 years, try a community bank who will be more flexible with you. Even if you have 1 year of oprations, but it was a profitable year, they may consider it. Depending on how much you are looking for, there may be other avenues as well. Community banks will also be able to take the full relationship into consderation, so if you have significant ancillary business to offer (deposits, merchant services, investments), it will also help your case.

Greg,

I'm thinking of buying a bikini club that has been around for 30+ years. It has gone through number of owners last few years, neither of whom put any effort into advertisement, marketing, business plan, etc.,etc... Owners are seldom present, current management and employees do not fit the upperscale profile of my city(roughly 100k pop.), I actually live 5 minutes from the place and have 15 years experience dealing with adult clubs. This business has very good potential if 100% time is dedicated to it and owner is present at all times.

They're tax returns are showing loss, the club is being used as rightoff for owner's other clubs and unfortunetly I have no collateral and have not been succesful in getting a loan. Also, land is not included in sale and my credit has not quite reached 700 yet.

Demographically, we're in an ideal area for this club to survive and prosper(no competion). Also knowing everyone in town, I feel extremely confident I can turn this business around and my only option for financing at this point seems to be an aged corp., which I would also like to use for other investements down the line as well.

I hope I answered your question. Would you have any suggestions?

Tks

Newstart - Can you please clarify your intent with the purchase of this "aged corp"? Based on the site you originally asked about, it sounded as if you were buying a corp for the sole purpose of obtaining credit for your new business. Your second post indicates that you want to acquire an existing business and operate it.

Sorry, I don't have any specific experience with that website. If you want to give us some details of the business and transaction, I can give you a sense if the deal is financable. Generally speaking if you find lender who claims that they can do things that are a dramatic departure from conventional underwriting standards, they are either: 1) going to charge you usurous levels of fees and interest, 2) trying to get you to pay a fee with no intention of funding your transaction 3) really stupid and won't be around very long.

Lighthouse-
Thankyou, you seem to be the only one out there that knows what I'm talking about. You are right-on, Excellent answer.

Thankyou

Milleisen, that was my point -- I couldn't see how it would be advantageous if the only purpose was to obtain financing. However, there are other benefits that could be significant (and have an economic impact).

For instance, I could list about 30 pages of problems and obstacles that someone trying to buy and turn around a declining adult club is going to encounter -- just in the first few weeks. If that buyer is Jason who lives down the street from the club, it's going to be rough road. Although the road will still be rough, the dynamics will be different (better) if the buyer is a Las Vegas-based corporation in the club management business with a D&B rating, accounts in good standing with industry-related suppliers, a 15-year history of paying its taxes, maintaining its licenses, etc.

So the aged corp makes sense to me here -- just not for the sole reason expressed.