Years ago, people purchasing a newsagency business could borrow against the value of the business without supporting brick and mortar property. It was considered a bankable asset.
That changes with deregulation in 1999. While people could still borrow against a newsagency business without other security, they could not borrow to the same level.
Today, the banks will not lend against a newsagency business. rather, they lend against property and permit those finds to be used to purchase and run a newsagency business.
The banks consider the business itself to not be an asset. The same is true for most independent retail businesses.
Talking to a banker last week at a business conference, they said their risk assessment people saw the increase in independent retail business collapses as a key reason. The situation of today is, in part, due to the collapse of others, their business failure has made it hard for those in business today.
There are lenders of last resort who will lend without the property asset. however, they do so at a cost and risk that is, in my opinion, not worth it. The banks have hurdles for good reason. I encourage anyone buying a retail business to be happy with them, to accept them and not seek to go around them.
The decision of the banks is not isolated to our channel. Further, it does not mean newsagency businesses are not a good investment. rather, the decision reflects on the nature of independent retail and the position of the banks towards risk assessment today. It reflects their natural conservatism and that money is their prime product.
Buying a business is like buying a house. You need the appropriate amount of capital before you can begin. The right amount of capital needs to also include funds for contingencies, costs you have not expected. Plus, it needs to reflect factors outside your control, which we see more in retail today.
Even with property backing a loan, banks will look automatically at a small retail business as an asset in itself. This is why the business needs to be prepared, to look like a good investment, to look like it will succeed. It supports the case to the bank.