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    20 Replies Latest reply on Oct 11, 2008 12:12 AM by GrowthCurve

    Would like to buy aged corp. for business line of credit

    newstart2 Newbie
      Would anyone know if B2Bcreditsource.com is a reputable company for this type of purchase
        • Re: Would like to buy aged corp. for business line of credit
          Milleisen Scout

          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.
          • Re: Would like to buy aged corp. for business line of credit
            Bridge Navigator
            Newstart,

            Help me out, what do you mean you would like to buy "aged corp." for business line of credit?

            Are you considering buying an ongoing concern business because they have a business credit line in place?

            Happy to provide further insight but want to make sure I understand your question/circumstance.

            Thanks,
            Greg
              • Re: Would like to buy aged corp. for business line of credit
                newstart2 Newbie

                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
                  • Re: Would like to buy aged corp. for business line of credit
                    Bridge Navigator

                    In this case, with the seller showing continued losses, you might want to consider seller financing for a larger part of the purchase price. It is a very common technique in small business transactions and much easier/flexible than traditional credit.

                    In my experience, the aged corp. concept would potentially have several flaws in the scenario you describe. When I have raised debt financing in the past, lenders always looked at the history of the company and/or owner. If they see a change of ownership or change of operations (it sounds like the aged corp. is just a shell), they will ask further questions and any "established" credit would be void.

                     


                    The aged corp. credit was originally established as an ongoing concern from operations. When those things change, the line of credit will too.

                     


                    I am not sure if you are talking about some small business line, trade credit with vendors, or some type of actual bank credit.

                     


                    How much dollars are we talking about here?

                    Greg
                    1 of 1 people found this helpful
                      • Re: Would like to buy aged corp. for business line of credit
                        newstart2 Newbie

                        Agree, seller financing will have to be part of the purchase agreement. Total price is around 340K, forming a LLC with established line of credit for 230K and will be the other portion of the financing. I would like to use the LLC to generate additional lines of credit for future investments. It is pricy as you probably know, it has cost me 19K so far but within 60 days I should have 230K and LLC. I have spoken with the people that are putting this together and flew out to their office in San Francisco. They are fully aware that within 60 days I expect to see what they have promised. Everything seems to be on course.

                         


                        Unfotunetly, this was the only way of financing this business without bringing in partners.

                         


                        I am not quite sure what you mean by the aged corp. being initiated by operations concerns. I am simply using this as a vehicle for financing a business. Within the next sixty days, things may change as opportunities arise and it may be used to finance other/different business with cash flow or potential thereof.

                         


                        Thank again for your insight, it is greatly appreciated..
                          • Re: Would like to buy aged corp. for business line of credit
                            Bridge Navigator
                            Newstart,

                            I am still missing something, when you say you will have $230 M in 60 days, what does that mean? Will you own a company that has $230 M in its bank account or does this company have a "line of credit" for $230 M? Or, will you use this company's name to apply for a loan?

                            Make sure you read the fine print on the line of credit docs. Other loans/lines I have been associated with still had limits and restrictions; use for acquisitions being one of them where we needed preapproval.

                            I hate to say it, but this sounds like one of those too good to be true - pay $19 M and get $230 M to use for whatever you want.

                             

                            If the price of the busness is $340 M, I would push for 20-30% down (maybe less) with two paybacks - one on gross receipts and one a loan amort. over 5 years w/interest only, balloon in yr. 5. By that time, you will have established credit and you can refinance the seller note.

                            How much would it cost to start a competing business? If you cant buy em, put em out of business. Sometimes it is easier and cheaper, especially if the one you are buying already has a bad reputation. Besides, interviewing new employees could be looked at as a perk...
                            • Re: Would like to buy aged corp. for business line of credit
                              fellsjf Newbie
                              i am thinking of using b2b credit also. how is it going with them? are they legit? do you expect to get funding soon?
                              • Re: Would like to buy aged corp. for business line of credit
                                jasoncole Newbie
                                Buying a business to get a loan to buy a second business just doesnt make sense to me. Especially since the second business is in your own words "under performing".

                                Also since it is a "bikini club" nearly all conventional lenders are a bit too shall we say prudish to want to be associated with that type of venture. I have had to walk from a number of profitable business loans in the adult industry in the past because of that attitude.

                                The good news is in the past two months I gotten two "adult" business owners funded through a pool of investors who see the money to be made on these types of ventures. I would be happy to take some time and see if your funding needs meet their criteria.

                                401-942-3607ext13
                        • Re: Would like to buy aged corp. for business line of credit
                          Lighthouse24 Ranger

                          If I'm reading this right, you're looking to purchase an aged corporation and then use its credit to buy an underperforming local club (thereby making the aged corporation the owner of the club, and you the stockholder in the aged corporation). Is that it?

                          That can be done, provided the aged corporation has an adequate line of credit. There's an attorney in the same building as my Nevada office that creates/sells aged corporations -- not all of them have credit established, however. Those that do are not cheap. He sells them for anywhere from $25K to $550K (depending on how old the corporation is, what kind of tax returns have been filed, and how much credit has been established). It seems to me that if you have enough cash to buy an aged corporation with solid credit, then you have enough to either capitalize a firm that could buy the club and/or obtain a traditional commercial loan.

                          On the other hand, there could be lots of good reasons to purchase an aged corporation that have more to do with operating the club than funding its purchase -- if that's the emphasis of your question, then it makes things clearer. I'm not familiar with the firm you're asking about, however.
                            • Re: Would like to buy aged corp. for business line of credit
                              newstart2 Newbie
                              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
                                • Re: Would like to buy aged corp. for business line of credit
                                  Milleisen Scout

                                  Interesting concept. I'm not sure I understand the economic benefit of buying an aged corp. While banks require that you have 2 year of operating history, that's just one factor. If the business is weak, it still won't qualify for a loan. If the business is strong, it will presumably cost you decent money, and if you had that you wouldn't need a loan in the first place.

                                  I think I'm missing something, but I don't know what it is.
                                    • Re: Would like to buy aged corp. for business line of credit
                                      Lighthouse24 Ranger

                                      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.