Business Finance in Derby & Derbyshire

Finance for businesses which have a value separate from freehold property need special consideration. When you buy a business which doesn’t come with a freehold property, your lender does not have their usual, obvious security. Many businesses, such as takeaways, public houses, newsagents, cafes and post offices are regularly located in short leasehold premises, and occasionally some others are, too. Since lenders see no value in any short lease property the value of the business lies in its goodwill, fixtures, fittings and equipment.

Even when this type of business is housed in freehold premises a purchaser will be expected to pay more than the value of the building. The value of fixtures, fittings and equipment can be assessed in a fairly straightforward way and there are specialist lenders who will lend on these items. Goodwill, however, is valued on the basis of “maintainable net profit”.

Two problems arise with goodwill. First, it can be difficult to establish the maintainable net profit because the annual profit and loss accounts for these sorts of businesses are rarely consistent. Secondly, very few lenders will lend against goodwill, which means that purchasers have to find more deposit.

Howard Thomas knows which institutions lend against the value of all aspects of businesses and the best way to assess that value.