I am in the process of making an offer on a business.
It has been pre-approved for 100% financing.
Asking price is 350k.
My question: should I go for the 100% financing, or is it better to pay 10-20% down to reduce the monthly payment?
thanks!
I am in the process of making an offer on a business.
It has been pre-approved for 100% financing.
Asking price is 350k.
My question: should I go for the 100% financing, or is it better to pay 10-20% down to reduce the monthly payment?
thanks!
I've never purchased a business before so there may be special rules that I'm unaware of. But in general, look at the cost of borrowing the money versus what else you could do with the money (opportunity cost). You might get a discounted interest rate if your down payment is higher. You might have more flexibility if you have less equity in the business.
Small business financing typically comes with a relatively high interest rate (relative to home loans for example) so I generally try to pay things off as fast as possible. This might not be the case if the seller is carrying the note and they are willing to give you a low interest rate.
As a small business owner I can tell you that it's important to have more cash available than you think you will ever need. During tough times you still need to keep current on your payments even though others might not be current paying you. So if putting money down depletes your cash reserves don't do that.
And one more thing, focus on getting the purchase price as low as possible. Times are tough and even if you insult them with a low offer, they likely won't walk away. Make an offer at the low end of what you think is reasonable. Make sure you have current financial information too. Some people are still trying to sell based on 2009 information since 2010 data is "not available yet". If the 2010 numbers were good they would be available, trust me.
Where are you getting your down payment from? Not home equity I hope.
no, I am not using home equity. I would be using cash savings.
thanks for the points Sunfire, that's basically my thoughts--the importance of keeping maximum cash in reserve for future downturns.
Though it would be nice to have a lower monthly payment and possibly reduced interest rate because of a down payment.
Seller is not carrying the note, I am expecting a rate arounf 6-8%.
Agreed on the low-balling as well. I do have 2010 financials, biz is down 4% from 2009, 10% from 2008. Not great, but not terrible for a depression.
Dave Ramsey says never borrow money (equity) to start a small business.