Borrowing to buy a financial planning practice

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Super Franky
Posts: 9
Joined: Tue May 10, 2016 4:51 pm

Borrowing to buy a financial planning practice

Postby Super Franky » Mon Jun 13, 2016 1:13 pm

If I want to buy a financial planning practice, what requirements am I usually required to meet to qualify for a mortgage? I'm asking because I can't find any specific requirements anywhere and all I've been told is that I need to call and discuss this with a bank manager but I would rather prefer to get some info beforehand...

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Otto Dargan
Mortgage Specialist
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Location: Sydney, Australia
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Re: Borrowing to buy a financial planning practice

Postby Otto Dargan » Mon Jun 13, 2016 3:15 pm

Hey Super Franky, welcome to the forums.

To buy a financial planning practice, you'll have to send in your details on the financial position of the portfolio you want to buy and a robust business plan along with your loan application.

Although lenders view each application on a case by case basis, here are some general guidelines that are usually applicable:
  • You can borrow up to 70% of the purchase price or 2.25x recurring revenue or 3x earnings before interest and tax (EBIT) of the client portfolio you want to buy, whichever is lower.
  • You can borrow up to 70% of the purchase price of a standard commercial property as long as it is freehold.
  • You can [rul=https://www.homeloanexperts.com.au/business-loans/refinance-a-business-loan/]refinance[/url] existing practice debt.
  • Working capital is available, which includes business overdraft facilities and fit-out finance.
  • You're required to have at least 5 years professional experience with at least 3 years in running a practice, and a practice business plan with profit forecasting may need to be provided.
Also note that low doc and no doc commercial loans are generally unavailable for this.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
Home Loan Experts

Super Franky
Posts: 9
Joined: Tue May 10, 2016 4:51 pm

Re: Borrowing to buy a financial planning practice

Postby Super Franky » Mon Jun 13, 2016 8:02 pm

70% is okay. I'd also like to know how banks will value a client portfolio. Can you please explain this?

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Otto Dargan
Mortgage Specialist
Posts: 7651
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Borrowing to buy a financial planning practice

Postby Otto Dargan » Tue Jun 14, 2016 9:09 am

Hey Super Franky,

As a basic requirement, your interest coverage ratio (ICR) should be more than two times your Earnings Before Interest and Tax (EBIT).

In addition to this, the profitability (EBIT/gross income) must be more than 20%, minimum annual revenue should be $750,000, profitability (renewable income/gross income) must be more than 50% and gearing (total liabilities/total assets) must be less than 70%.

Aside from the above, the longer that the practice has been running successfully, the better your chances of getting approved for a financial planning practice loan.

You can check out our website for more info. You can also discuss things directly with one of our business loan experts by calling 1300 889 743 or by filling in our free online assessment form today.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Super Franky
Posts: 9
Joined: Tue May 10, 2016 4:51 pm

Re: Borrowing to buy a financial planning practice

Postby Super Franky » Tue Jun 14, 2016 12:12 pm

Thanks Otto. Would be good if we could also negotiate some of this with the bank. I'll definitely give you a call to discuss my situation and loan needs. Cheers.


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