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Are you thinking of buying an existing commercial landscaping business? This can be a great opportunity, especially if the business is well-established and has a strong client base. However, before you jump in, there are several things you need to consider.
Credit, Character, and Capacity
When it comes to financing the purchase of an existing business, lenders typically consider the “five C's”: credit, character, capacity, collateral, and conditions. In this case, we'll focus on the first three.
Credit refers to your credit score and credit history. To qualify for a loan to buy a business, you'll typically need a credit score of at least 680, but preferably higher (720-780 or more). A good credit score shows lenders that you're responsible with money and are likely to repay the loan.
Character refers to your personal traits, such as honesty and integrity. This is difficult to measure, but lenders will likely consider your work experience, education, and references.
Capacity refers to your ability to repay the loan. Lenders will want to see that you have enough income to cover the loan payments, even if the business experiences a temporary downturn.
Experience and Business Plan
While it's not necessary to have experience in the landscaping industry specifically, it does help to have some business experience. In this case, the questioner has managed his parents' small accounting firm, which could be relevant experience.
Another important factor is having a solid business plan. This should include information about the existing business you're buying, such as its revenue, expenses, and client base. You should also outline your plans for the business, such as whether you'll keep the existing staff or hire new employees, and how you plan to grow the business.
Financial Requirements
In addition to the five C's, lenders will want to see your financial statements, including your personal financial statement (Form 413) and your business plan. They'll want to see that you have enough cash reserves to cover unexpected expenses or a temporary downturn in the business. You'll also need to have enough equity to make a down payment on the loan, typically 5-15% of the purchase price.
If you're not financially strong enough to qualify for a loan on your own, you may need to consider other options. For example, the current owner may be willing to carry some of the loan themselves, or you could bring in a partner with more financial resources.
Conclusion
Acquiring an existing commercial landscaping business can be a great opportunity, but it requires careful planning and preparation. Before you commit to buying a business, make sure you have a strong business plan and the financial resources to make it work. By focusing on the five C's, your experience, and your business plan, you can increase your chances of success as a new business owner.