Elevate your engineering consultancy with financing options for expansion or purchase. If you’re wondering about financing, know that lenders offer balance sheet lending for various projects. However, not all lenders are the same, and finance discounts can differ. 

Obtaining a Commercial Loan 

• How can you secure a commercial loan for your engineering consultancy? 
• Do you have management experience in engineering or quantity surveyors consultancy? 
• Are you running your business for a few years and considering releasing your residential property from the business loan? 

Banks prefer engineers, offering favorable terms with the right lender. 

Borrowing Limits and Terms 

• How much can you borrow? 
• Borrow up to 70% of the business value or up to 100% with residential property as security. 
• Borrow up to 90% of your residential property’s value with no Lenders Mortgage Insurance. 
• Freehold: Borrow up to 70% of the purchase price for standard commercial properties. 
• Repayment options: 5 to 30 years with residential property as security; interest-only for up to 5 years. 
• Minimum 3 years of professional experience required for eligibility. 
• Various loan types available with a larger deposit. 

Bank Evaluation Criteria 

Banks assess minimum performance indicators for loan approval, applicable to refinancing or buying a new quantity surveyors company. These indicators include: 

• Business turnover: Over $2 million per annum with 3 years of financials. 
• Management experience: Minimum 3 years. 
• Professional indemnity insurance appropriate to the firm. 
• Net worth per partner: $500,000. 
• Operating profit before tax: 10-20% of revenue. 
• Debts/liabilities to assets: Over 50%. 
• Maximum reliance on a single debtor: Less than 30% of total revenue. 
• Security: General security agreement (GSA) of the commercial premises. 
• Keyman insurance essential for businesses relying on a managing director. 

Interest Cover and Business Plan 

• What about interest cover? 
• Some lenders require interest cover to be more than 2.5. 
• Interest cover is total income divided by total interest. 
• Earnings before interest, tax, depreciation, and amortization (EBITDA) preferred by lenders. 
• A business plan with cash flow forecasting for the next 12 months is necessary. 
• Systems in place and your experience must complement the firm you plan to buy. 

Meeting Bank’s Requirements 

What if you don’t meet the bank’s requirements? 

• Commercial loan applications aren’t a “tick the box” method. 
• Building a strong business case is crucial for approval. 
• If the balance sheet isn’t strong, the bank may require your residential property as security, potentially allowing up to 100% borrowing. 

Refinancing and Property Considerations 

What if you want to refinance your current business loan? 

• Purchasing an existing firm with freehold property may be a better option than just the business. 
• The commercial property provides stability and retains value. 
• Seek professional expertise for buying the freehold property. 

Identifying Goodwill 

Consult a specialist accountant for valuing goodwill, considering factors like existing contracts, reputation, diversified client base, support staff, premises, and equipment. 

Features of a Commercial Loan 

Features vary based on Loan to Value Ratio (LVR) and loan type: 

• Offset account: Typically not available. 
• Line of credit (LOC): Available but with higher interest rates. 
• Redraw facility: Available for pre-paid amounts. 
• Additional repayments: Available on variable rate commercial loans. 

Industry Outlook 

The engineering sector’s solid run and the appetite for consultancies depend on track records, experience, and contracted projects. Resilience is vital, emphasizing a minimum track record of 3-5 years. 

Seeking Professional Guidance 

Engage legal and financial professionals, including an accountant, business broker, financial adviser, and lawyer/solicitor, to avoid common mistakes when buying a business. 

In conclusion, secure an engineering consultancy commercial loan by presenting a strong case, understanding lender criteria, and collaborating with a knowledgeable advisory team. This approach enhances approval prospects, facilitating a seamless transition in buying or expanding your consultancy.