One of the most frustrating aspects of buying and selling a business is trying to raise finance from a bank. Time and time again, serious buyers rush to their bank managers hoping to raise finance on the strength of their assets and those of the business they hope to acquire, only to be turned down. The truth is, banks are nothing more than glorified pawn brokers. The banks are generally not geared up to finance purchase of a business. The ones which claim to be, usually have set criteria as follows:

Take a borrowing requirement of R120 000. If you have R30 000 in cash and the balance to be secured by a bond over your property, you may succeed. But without the security of equity and property, you'll be out of luck. A business manager with a major bank says the problem lies with bank managers without the business skills to provide creative financing.

But all the security in the world and a history of 22 years with the bank, are no guarantee you'll get a loan. We had a solid home improvement business for sale once. A working director was staying on and the buyer was technically qualified, in addition to having a bond over his house and a portfolio of blue chip shares to cede to the lender. Three banks turned him away. In the end, a switched on Amanzimtoti bank manager stumped up the loan, backed up a second bond on the house and cession of the business debtors and shares. And he paid two visits to the company to assess viability, something most loan managers seldom do.

Banks attribute their traditional backwardness to the experience of burned fingers in business finance. I believe most of their losses have been with start up businesses, not sound going concerns.

The only way to succeed is to shop around until you find a switched on bank / loans manager that will work with you to achieve your dream.

Alternatively - 'Khula' Guarantee Scheme

There is hope however, under the "Khula" Guarantee Scheme - through the Department of Trade and Industries.
The basics are that the government will guarantee 80% of what a bank is prepared to lend thereby reducing the banks risk. In theory, subject to certain criteria, one could buy a business with a 10% to 20% deposit.
Unfortunately most banks are not promoting the scheme.
We have had a lot of success with ABSA and Standard Banks' Commercial Divisions - don't be surprised if your local branch has never heard of the scheme..
Bear in mind - this scheme is for empowerment not enrichment, so if you have large resources of money you will not qualify.

The general requirements are:

The delay for bank and Khula approval and for funds to be paid out is 6/8 weeks from receipt of all documentation.
N.B. This is an excellent scheme for helping to finance a business.

Mike Hindle of Aldes Business Brokers, www.aldes.co.za

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