General information only. Does not consider your personal situation.
Most business owners don't set out to buy their premises. They run out of room, work out what another five years of rent costs, and start asking questions.
You usually know the building stopped your business fitting long before it shows up in the numbers. Stock in a second shed across town. A truck waiting on the street because the loading bay only takes one. Staff walking twenty metres further than they should to do a job that used to take half as long. You pay for all of that every week, and none of it appears on your P&L with a label on it.
Dan Rhodes-Ryan, founder and finance specialist at Bloc Advisory.
Why I read these deals the way I do.
I've spent more than sixteen years in senior lending and leadership roles inside Australian banks. I've held credit delegations, so I've been the one reading the file and deciding. I've also been the relationship banker sitting across the table from the owner, hearing the parts the numbers leave out.
In all that time I've rarely seen a goal that was the problem. More often the goal was sound and the file wasn't telling the whole story yet. Sometimes the work is in how the application is built. Just as often it's in what the business itself can change in the months beforehand.
The deal: $9 million, and a file that read worse than the business.
Illustrative scenario, details changed.
The need. A family-owned business turning over around $20 million had been in the same leased site for eleven years, with a second warehouse rented as a stopgap. A property came up that would hold them for the next decade, at about $9 million.
The block. On the last lodged financials they read tighter than they were: rent on two sites, overtime to work around a layout that no longer suited them, and a freight run between the two. They didn't have the deposit sitting in the bank, and the family home was already supporting the existing facility. Read cold, that file says no.
The fix. I spent time with the owners on the business and where they were taking it, which is where the real numbers were. Most of the new repayment was money already going out the door, just to other people. Rent on two sites stops at settlement. Double-handling stops. The freight run stops. Those weren't projections, they were line items with invoices behind them, and presented that way a credit team can verify them.
We also had seven months before settlement, so we used them. Collections were tightened from 52 days back towards terms, which released working capital the business already owned. Stock that hadn't moved in eighteen months was cleared. Then the facility was structured so the property debt was sized and termed to the property, with working capital kept separate, so buying the building didn't quietly eat the overdraft the business runs on.
The outcome. Approved, and structured around how the business actually earns its money.
Illustrative scenario. Details changed. Outcomes depend on individual circumstances and lender assessment.
Three questions purchase finance relies on.
Deposit, and where it comes from. Lenders generally expect more equity on commercial property than on a home, and how much varies by lender, property type and the strength of the business.
Whether the business can cover the payments. Not your best month. Normal months, slow months, and what's already committed to the ATO, existing facilities and equipment.
Whether the property itself makes sense. A standard industrial unit with a dozen possible occupants is read differently from a highly specialised building with one.
Three things worth doing first.
Get your lodgements current. A lender reads the most recent year it can verify. If that year is two years old and softer than today, the numbers will already be against what’s actually happening in your business.
Keep the ATO current, or on a formal plan that's being met. A plan being kept reads very differently from a growing balance.
Put a number on what your current site is costing you. Having a dollar value attached to the growth you had to pass up and operational inefficiencies day-to-day is often the strongest part of the application.
Where to start.
If you’re feeling the squeeze in your current premises, the most practical first step is working out where you stand, what a lender will ask for, and what's worth changing in the business before anyone looks at it.
If my approach could help your business, reach out.
Call 0483 697 456 or email dan@blocadvisory.com.au
Important information
This article is general information only. It does not consider your objectives, financial situation or needs, and it is not tax, legal or financial advice. Any loan is subject to lender approval. Fees, terms, conditions and eligibility criteria apply.
Bloc Advisory (Credit Representative 581529) and Daniel Ryan (Credit Representative 581546) are authorised under Australian Credit Licence 389328.
