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How to finance IFA acquisitions
by William Robins on Nov 30, 2010 at 00:01
Sheriar Bradbury (pictured), Steve Moseley and Mark Woods explain the best way to fund buying up other client books.
Managing director, Bradbury Hamilton
I don’t get the company to borrow money, that way there’s no debt.
I feel the banks are too unreliable. I would not run an overdraft they could withdraw at any time. I have seen that happen to some.
There are also problems for any upfront deal. If you start doling money out upfront then what guarantee do you have from the other end? You would not be able to enforce their end of the agreement and you lose leverage.
Don't pay upfront
My advice would be to save up cash over time, and if you don’t have cash then don’t pay upfront. We never pay more than 50% initially for an acquisition. It would be too much of a strain on cashflow.
What you can do is use an asset. Indeed, you could set it against your house. That way you are only risking the money you have provided. If you borrow against the business the bank’s claim is not restricted to the money put up. The bank will probably ask directors for a personal guarantee in which case you might as well get a cheaper loan restricted to your own property.
Just make sure you clear it with any dependents living there.
If you are not putting up the cash then the lenders are taking a bit of a risk on you, because you are not putting up your own money.
Director, Sterling McCall
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