The amount of down payment required for your purchase of a childcare company or school is determined primarily by the following four factors:
1. Your credit score.
2. Your occupational background.
3. Whether or not you’re buying real estate with the business.
4. The type of financing and lender you choose to make the loan.
First, your credit score in this market needs to be 700 or better. In some cases, your score can be in the high 600s as long as there is a good reason for it, but ideally you and any partners need to have scores that will average out around 700 or more.
Second, your occupational background speaks to your strength as an owner or operator. This is certainly important to the bank looking to be repaid, but contrary to some public perception, it is not always necessary to have a background in education. I have seen buyers become wonderfully successful in our industry after careers in non-education sectors.
Third, if you’re buying a childcare company with real estate, then your down paymwnt amount will be lower than if you are buying a childcare company or school with no real estate. Your financing term will also be longer if real estate is included in your purchase. Assuming you are using an SBA loan, as most people do, your term will be a maximum of 10 years if you’re buying a company with no real estate. But the term can be as long as 25 years when real estate is included in your transaction.
Fourth, the bank or lender you choose to make the loan can have a considerable impact on the cost of your loan. Costs include the amount of cash you have to use for a down payment as well as your interest rate, points on your loan, the amount of time it takes the bank to close… etc. The best defense against an overpriced loan is to make the banks compete with each other, and don’t be afraid to let the banks know that they are competing for your loan. Banking is an extremely competitive business. Don’t settle for talking with your local banker down the street. BFS® works with more than 60 major banks for this very reason. To learn more see https://bfsinc.net/financing/. Remember, a quarter-point difference in interest rates means a lot of money to you over the term of your loan.
If you’re planning to use a SBA loan for an acquisition, note that you can borrow with down payments as small as 10% of the acquisition price. Focus on banks with SBA Preferred Lender status, and make sure the banks have experience lending in the early education vertical.
While there are certainly other factors that will affect the approval of your loan, covering these items successfully will take you most of the distance.
I hope you find this information helpful. If you need more information related to financing your business acquisition, don’t hesitate to visit us at https://bfsinc.net or call us at 800-467-1774.
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(Legal Disclaimer: Always consult the proper professionals before taking action. By and before the use of the information provided herein, reader agrees that BFS® is not responsible for viewer’s actions related to said information.)
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Your credit score and occupational background.
Whether or not you are buying real estate with the business and the lender you choose makes a difference.