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Old 25th October 2010, 02:21 AM   #1
ironmike9110
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Default How Much Money Could I Get From A Small Business Loan?

Its gonna be a while but I plan to start my career around 23 years old as a cop. Im going to be living at home and saving as much money as possible.

My first year I will be paying off student loan debts. Year 2-4 I plan to save for a down payment but here lies the problem. If i wanted to buy a $400,000 business and only had a down payment of $30,000, is this possible to get a loan that high with so low of a captitol. Not to mention no credit (not bad or good...just none, Ill be 26-27 years old with no house.)

I dont know if it sounds crazy but I wanted to buy an ABSENTEE business...and Ive seen them online. Something like a gas station/c-store or a coin-op laundromat or a self-serve car wash.

BUT hear me out! I want to buy absentee because I want to keep my full-time job. SO say I was making $65,000 a year as a cop, and the absentee business I want to buy makes $40,000. AND lets say I work 2 shifts of overtime a week making time and a half...that equals to another $30,000 a year. All together thats $135,000 ($89,000 after taxes) a year WHILE STILL LIVING AT HOME - meaning NO mortgage, utilitie bills, among some other things! I estimate ill only need about $25,000 to live at home. That would leave me with $64,000 a year to PAY OFF the business loan!!!!

Heres how a 7 year loan would go...
$400,000 - $30,000 = $370,000..
$370,000 at 5.0% interest is $5,230 a month..$62,760 a year.

The only real problem with this would be that I would have to live at home with my parents until 34 years old when the business would be paid off. UNLESS of course a business selling for $400,000 NETS more than $40,000 a year....which if it did, could shave some years off the loan!


advice?

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Old 25th October 2010, 07:55 PM   #2
raydog
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Taking your questions one by one:

Your downpayment's too low. Most lenders look for 20% to 50% from you, depending on the type of business and your experience. Don't forget for a loan this size, the lender's going to want some solid collateral, like real estate. You might find someone to do it on business assets, but they'd have to be pretty good assets, not store fixtures or laundry equipment.

You might have a credit score. Do you have credit cards? Car loan? Pull your free credit report and see what's there. If nothing, get a few cards to start some credit.

Absentee business is not a good idea. To run a successful enterprise you will have to be there every day. If you're not, not only will the business decline, but your employees will steal from you.

If I spent $400K on a business, I'd expect a lot more than $40K/year cash flow. Going concerns should be priced about 3.5X annual cash flow.

Your assumed interest rate is too low. Run it at something around 7-8%.

Don't let all this put you off. I've worked with several individuals in your situation. One of the most successful was a law enforcement officer who ran a children's amusement business on the weekends. He rented out party inflatables to birthday parties, church functions, street fairs. He could run it out of his home and stored the equipment in a rented mini storage. He was lucky enough to have little competition and some pretty good pricing power. Think about a business model that lets you actually work in the business during your off hours, run it out of your home, and start with low costs. Good luck!

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Old 26th October 2010, 02:01 PM   #3
ironmike9110
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How about real estate?

I thought about buying an apartment building...ive seen some online that are running between $300,000 and $400,000 for between 6-10 untis netting an "actual profit" of just under $50,000 a year.

My plan was to buy a $100,000 house ($20,000 down), and renting it out for $1,000 a month...then when that was paid off buying another and doing the same. Then when the 2nd one was paid off, sell them for alittle over $200,000 combined, and using that as a down payment for a 300k-400k apartment building.

If I lived at home, and was able to put $20,000 a year in from my full-time job, then another $50,000 from the units being rented themselves. I could pay the remaining 200k off within 3 years seeing as I would have 70k a year to put into it.

Thats prettty much absentee right? More possible..I mean real estate is collateral right?

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Old 6th November 2010, 02:59 PM   #4
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It's pretty much absentee if you don't count fixing things that break, collecting rent and finding new tenants. Sometimes you might even have to mediate tenant disputes, say when one plays loud music late at night. You could always hire a property manager, but they get anywhere from 10 to 20% of gross rents. The numbers you quote suggest a pretty high rate of return for apartments. Are they after or before mortgage, taxes and insurance? Nevertheless, if you are able to charge rents that exceed your monthly payments, if only by a little bit, the property will cash carry and you can take advantage of a big depreciation deduction on your taxes. You do have to repay the deduction when you sell the property, assuming you sell for more than your tax basis, and you do not arrange a like-kind exchange. This does not constitute tax advice.

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Old 7th November 2010, 07:05 PM   #5
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Your plans are ambitious to say the least. The biggest hole that I see (as pointed out in previous posts) is that I think you're considering everything will go as planned.

NOTHING works that way. Trust me... if you don't listen to anything else in these posts... listen to this. NOTHING WORKS THE WAY YOU PLAN IT.

Your absentee business will get robbed blind! Somewhere between 23 and 34 years of age you will change your mind. Those are just the first two issues.

I like the suggestion of real estate... specially with the current situation. But the real problem that I see... and this is NOT your fault... is experience. You just don't have the experience. That's why you're running before you walk. Start with one thing... get it going. If it works the way you want it to, you will know (a lot more) when you do it again.

Good luck!

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Old 8th November 2010, 02:17 AM   #6
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Quote:
Originally Posted by BeTheBest View Post
Your plans are ambitious to say the least. The biggest hole that I see (as pointed out in previous posts) is that I think you're considering everything will go as planned.

NOTHING works that way. Trust me... if you don't listen to anything else in these posts... listen to this. NOTHING WORKS THE WAY YOU PLAN IT.

Your absentee business will get robbed blind! Somewhere between 23 and 34 years of age you will change your mind. Those are just the first two issues.

I like the suggestion of real estate... specially with the current situation. But the real problem that I see... and this is NOT your fault... is experience. You just don't have the experience. That's why you're running before you walk. Start with one thing... get it going. If it works the way you want it to, you will know (a lot more) when you do it again.

Good luck!
your advice sounds good. You sound just like my dad.

First order of business for me is to not only get into the Police Academy, but to also pass it....and then FIND A FULL-TIME JOB!

after that I will be able to look into what I want to do if I can get some money up. "Start small & nothing works as planned." I KNOW THIS, as much as I hate to admit it.

If anyone has anymore advice...I AM WILLING TO LISTEN!

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Old 8th November 2010, 07:10 AM   #7
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I am glad (at least) that you're listening. I think your Dad is a wise man too.

Listen, I am not trying to rain on your parade. In fact, it is refreshing to see that somebody of your age has that ambition. BUT... just one bad experience and it could all go out the window.

Whatever you do... learn how to create spreadsheets and cashflow projections. The one thing that you really need to understand about ANY business is to know when the CASH is coming in. Without cashflow.... you're dead.

See... now understand you can have cashflow without profit. You can also have profit without cashflow. As an example, having cashflow without profit would probably mean you're getting all the sales because you're selling too cheap. That's not going to feed anyone.

Profit without cashflow is a scenario where you can't get your money in fast enough. Customers dragging you 60-90-120 days. Even though you make a lot of money on the sale... you may not last long enough to pay the electric bill.

If you're good at Lotus 1-2-3 or Excel, you should be able to create a 24-36 month projection. It's only a PROJECTION so toss out those hopes and dreams where you have every dime and dollar accounted for. Business doesn't work that way.

Last... but certainly not least.... stay away from a business where you don't want to be involved... and do something that you passionate about. If you really enjoy what you're doing... you will think better and make better moves.

Good luck! (Say hi to your Dad too, huh? )

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Old 8th November 2010, 10:25 AM   #8
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It is OK to dream and dream big. You have your goals - now prioritize them and start marking them off one by one.
The down payment will not matter until you know what business. Let's say you find a business that the current owner will finance - then your down should be OK. Or, if you can start something from scratch - like an online business - all in your spare time - then you might not need a down payment at all.
Also, with SBA guarantee programs - you might only need 5% to 10% down.
Prioritize your goals and work on them one by one - it will work itself out in the end.

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Old 20th January 2018, 03:51 AM   #9
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You might have heard some grumblings about small business loans: they're hard to obtain; your credit has to be flawless; don't ask for too much money or you'll be denied.

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Old 30th January 2018, 09:27 AM   #10
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Quote:
Originally Posted by lantranhana View Post
You might have heard some grumblings about small business loans: they're hard to obtain; your credit has to be flawless; don't ask for too much money or you'll be denied.
You don't necessarily have to have good credit and collateral to get small business loans or MCAs. However, he does need to show a small business loan lender that he has been in business for at least 3 months and is depositing a healthy amount of cash per month from the business, like around $8,000 to $10,000 per month.

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