30% of first generation Australian Family businesses expect the next generation to become majority shareholders within the next 5 years. There is a growing sense of urgency around succession as a generation of business owners look at transitioning. This transition requires careful planning across all facets of the business, including managing debt or facilitating additional investment. Traditionally, business owners secure their business debts using a combination of commercial and residential property. Home loans may have been paid down over the years, but an interest only commercial debt remains.
How does a business owner separate themselves from the business if their property is tied in? Often you will be looking to sell the business to a succeeding family member or external party. How are they to fund this purchase if they themselves don’t have a house to put up as security, or if their home loan is sitting at 80% or 90% loan to valuation ratio? If you are selling to an external buyer, they may need the cashflows of the business to support the debt they take on to make this purchase.
The landscape of finance has changed in the last few years to fill in the answers to these questions. Lenders across the spectrum from major banks to private lenders have a codified and specific method of assessing business for a loan against future cashflows of the business. Mature lenders have specialists within specific industries that have favourable terms for certain industries. Even general industry has many options, depending on what you do and how the potential financier assesses the value of the balance sheet, or future cashflows. There are specialist lenders for certain industries who will be able to lend you the money to get your property out, or the purchaser to pay you to do the same.
At the other end of the spectrum, maybe you are working in your family business and you have the opportunity to purchase some shares. Or you have a business you have your eye on and are in negotiations. If you or your client cant, or doesn’t want to tie up property in the security makeup, reach out to our team.
