Access to funding for management rights has certainly opened up in the last few years but knowing which bank or lender really wants your business and will provide competitive loan terms (ie. save you money) comes down to two things, business lending experience and negotiation skills. Going direct to your existing home loan lender isn’t always the most beneficial option.
This is perfectly illustrated by a management rights business I assisted earlier in the year.
Management Rights Case Study:
I was approached by the very frustrated owners of an existing management rights business, who had been working directly with a top 5 bank to secure funding. They wanted to see if I could better their existing loan package offer.
In summary, two business partners wanted to buy out their third partner (60% owner) in a management rights business for an iconic accommodation franchise resort based in NSW. The two partners wanted to purchase the third partner’s share (60% of the asset) using only equity in the business.
The business partners had previously worked with a banker based in NSW with little experience in the management rights industry. They spent 12 months in deliberations and $5,000 in legal fees only to have a deal offered by the bank that was unworkable.
Working with their accountant, we analysed the business case and examined all risks. At that point in time, only 2-3 lenders had a policy to address the complexity of the agreement – a rare 90-year management rights term.
To successfully secure funding for this business, we needed a bank and more specifically a bank assessor, with a thorough understanding of the nature of the business – otherwise the computer would literally say NO. Through my understanding of bank policy from a range of banks (not just one), and my own industry contacts, I knew which Qld-based banker with management rights experience would be able to apply critical thinking to the application.
This was a scenario that literally sat outside of bank policy but was an excellent deal and just needed a business finance broker with management rights experience to clearly outline the business case and its potential to the right lender.
I ordered a new valuation of the business as the original ($4m) was based on flawed assumptions. Again, only someone with an understanding of management rights businesses would identify this. The new valuation was $6m – a $2m differential.
My own understanding of banking policy and management rights businesses meant I could present the true potential of the client’s business case to an alternative top 5 bank. By presenting a comprehensive loan application we achieved an interest rate that was 1.5% below the original bank proposal. The savings potential in $ terms was significant.
Approaching your bank direct, whether it’s your existing business lender or your home loan provider seems like the logical approach but unfortunately one bank means one option. You might be lucky but odds are, the more choice you have, the more likely you’ll find funding that’s truly in your best interest. That’s where the assistance of an experienced business finance broker, someone who has access to a range of banks and non-bank lenders and works with management rights businesses day in, day out, is going to be in a better position to help you secure a better finance deal, or at the very least provide you with clear direction on your current options.
If you’d like a no-obligation overview of finance options available to you or simply need to know if savings can be found on your existing business finance, please reach out.
THE FINEPRINT: The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. While all care and attention are taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances.
Green Finance Group Pty Ltd ACN 145 035 221 is authorised under LMG Broker Services Pty Ltd ACN 632 405 504 Australian Credit Licence 517192.
"While my extensive industry experience covers all areas of banking, loans and leasing – commercial, equipment and residential – my business finance specialties are the broader hospitality, accommodation and childcare industries."
Commercial Finance, Equipment Finance, Home FinanceFortitude Valley, Brisbane
Australia's leading hospitality, accommodation and childcare finance specialist and winner of Australian Broker of the Year 2022.
Prior to establishing GFG in 2010, I occupied senior management roles in some of Australia's leading financial institutions including Commonwealth Bank of Australia, Suncorp, Bankwest and Westpac.
