Guide to financing the purchase of
a business - Surveys & Valuations
Independent
Business Valuation:There are several companies that offer such valuations with
the report being addressed usually to the lending source. There
are some national independent business valuers as well as some
more local, specialist valuers. Not all business valuers are
acceptable to all lenders. It is imperative thatyou
do not make your own arrangements, as you could find that the
report is simply unacceptable to the lender.
We
must emphasize that independent business valuations are
commissioned either by ourselves
or the
lending institution but at your expense. These valuations
can be an essential feature of the proposal and represent the
situation where totally independent and impartial comments are
being made. They can help to ascertain that you are paying a
realistic price and that there should be sufficient profitability
to service the proposed borrowing. You may receive a copy of the
report, but you must understand that this is commissioned to
assist in the arrangement of the finance rather than necessarily
giving a warranty on which you can totally rely.
Bricks
and Mortar Valuation:This is often, but not always, required and is frequently
commissioned by the lending source but usually after agreement in
principal to the proposed advance. Please note that Independent
Business Valuations will incorporate a
bricks
and mortar valuation.
The
figure the lender is looking for is precisely what the property is
worth without any business included.
This obviously reflects the 'fall-back' value of the property to
the lending institution in the event that they need to enforce
their security as a result of failure to meet the loan repayments.
Sometimes
a bricks and mortar valuation commissioned by yourselves can be
used, but you should ensure that the valuation is carried out
either by a Fellow or an Associate of the Royal Institute of
Chartered Surveyors (FRICS or ARICS).
Some
lenders retain the right to instruct the valuers themselves and
have a restricted list of approved surveyors. Such valuations
also equate to those requested by Building Societies in connection
with house purchase i.e. ensuring an adequate value for mortgage
purposes without necessarily providing any warranty as to the
general condition of the property.
Structural
Survey:These are the most thorough of all (and therefore the most
expensive) and once again are carried out by a FRICS or ARICS to
determine the precise structural condition of the property. A
structural survey is a condition of an advance in only exceptional
circumstances - usually where the property is very old or in
doubtful condition. From the point of view of your own peace of
mind, you may feel more comfortable about your purchase if you
have such a valuation, which obviously would preclude the
necessity for a bricks and mortar valuation as described.
Note:Do
not think that these various 'surveys' are restricted to freehold
properties. With leasehold property you are often expected to
become responsible for the repair and maintenance of the property
(under the terms of a 'fully repairing and insuring lease'), and
prior to taking on such a commitment a full structural survey will
reveal any defects for
which you may be taking responsibility.
The preparation of a 'schedule of dilapidations' may ensure that
such repairs come outside the scope of your responsibility or
reduce your liability for repairs in the future.
Finance Links:
This links below will help you understand the
finance aspect of a purchase of a business.
