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Newsagency Finance
Newsagencies are considered to be good businesses to buy but they usually require an element of borrowings to complete the purchase. As part of the finance is often secured by the business itself, lenders have significantly differing terms and conditions when lending against these businesses. There is, therefore, a lot to consider when organising your finance and selecting your lender.
How Much Can You Borrow?
What Size Newsagency Can I Buy?
What Would Be a Suitable and Tax Effective loan structure to Purchase a Newsagency?
Interest Rates
Borrowing Costs
How Long Do Loans Take To Settle?
Lenders Considerations
Borrowers Considerations
About Robert Mayor & Associates
Contact Us for More Information
How Much Can You Borrow?
This varies from lender to lender, however, the current maximum loan ratios used by certain Banks are:
(a) An amount equal to 60% of the Purchase Price of the newsagency being purchased.
(b) Up to 80% of the value of residential real estate which is used as security for the loan.
First Mortgages only are considered unless the First Mortgage holder is also the newsagency lender.
(c) Where commercial real estate is offered as full or partial security, the standard lending ratio is 70%.
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What Size Newsagency Can I Buy?
It is important to get an idea as to how much you can spend on a newsagency as this will save you time in not looking at businesses that are beyond your reach. Given the previously stated lending margins and allowing for set-up costs, a simple formula to provide you with an indication is in the following calculator.
Please note: When entering figures, please insert values rounded to the nearest dollar value. Also do not include commas or decimal points. For example, enter an amount of $275,000 as 275000
What Would Be a Suitable and Tax Effective Loan Structure to Purchase a Newsagency?
To obtain an assessment of your particular situation, complete the following input fields and add your email address. We will complete an assessment of the most suitable loan structure for your purchase.
If you have selected a specific newsagency to purchase, we will attempt to obtain a copy of the summary of weekly trading for that business and the most recent profit and loss account so that we can also provide you with a realistic likelihood of approval.
Please note: When entering figures, please insert values rounded to the nearest dollar value. Also do not include commas or decimal points. For example, enter an amount of $275,000 as 275000
Interest Rates
Rates vary significantly depending on the lender, the security offered (i.e. real estate or Goodwill), the term of the loan, whether the loan is Fixed interest or Variable interest, the strength of the financials supporting the proposal and the background of the applicant. Clearly there are many variables. The best rates, however, will be obtained if borrowers can offer their residential property as security for the loan or for most of the loan. Current Variable rates in these situations are approximately 6.70% with fixed rates starting at approx 6.65% for one year up to 6.75% for five years. Recent interest rate increases are making the fixed rate borrowings look very attractive. If the business only is offered as security for the loan, then depending on whether the rate is Fixed or Variable it may be between 9.50% and 12.5% on the portion of the loan secured against the business.
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Borrowing Costs
Once again, these vary depending on the source and type of borrowing. As with interest rates, the lower costs are to be obtained with business loans secured by residential property. In these instances, the loan costs usually do not exceed $500. Banks usually charge an Establishment Fee of between 0.5% and 1%, plus legal fees which vary depending on the complexity of the structure and the size of the loan.
Note: There are no fees payable to RMA from borrowers as RMA's costs in organising loan approvals is covered by the lender.
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How Long Do Loans Take To Settle?
From start to finish these loans can comfortably be settled within 3 – 4 weeks. This is well within the time frame for settling the newsagency purchase, which, with training, accreditation, etc. usually takes up to 6 weeks or longer.
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Lenders Considerations
Lenders like to see part of the debt amortising or reducing. They do not like to see the majority of the loan on an Interest Only basis, particularly if part of the security for the loan is the newsagency business. Ideally, given that interest rates and Fixed interest rates in particular, are very low, an example of an acceptable structure to a lender would be: 50% of the loan on an Interest Only basis, fixed for say, three years; 30% of the loan fully amortising over ten years; and with a working overdraft of approximately 20% of the loan amount. This provides the borrower with good flexibility and stability whilst providing the lender with a reduction in total loan out standings.
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Borrowers Considerations
The structure of your business loan should complement yourselves as well as the lender. For example, the loan structure for a purchaser wishing to own and pay for a business as quickly as possible, would differ from, say, a buyer with a redundancy settlement who was more concerned with obtaining employment whilst maintaining a good lifestyle. The first borrower would most likely take a shorter term, fully reducing loan, whilst the second borrower would most likely take a higher percentage of the loan on an Interest Only basis so that he would receive a greater level of disposable income from the business. A word of caution is that only the interest portion of the monthly repayments are tax deductible. Additional principal repayments must be made from after tax dollars.
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About Robert Mayor & Associates
Our company has been involved in the financing of newsagencies for over 12 years. We have established sources of finance specifically for newsagency acquisition and refinance with selected lenders. We have negotiated preferential terms and conditions which significantly benefit our clients. The overall set-up costs and interest expense are usually considerably lower than for direct approaches by clients to traditional sources. We would be pleased to discuss your particular financing requirement and advise you as to the structure and source of the borrowing. In addition to newsagency finance we also provide finance for the acquisition of other types of businesses. We offer a full range of financial services including Commercial & Residential Mortgages, Leasing and Commercial Hire Purchase. For further information please contact us
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