How to better structure your business in view of requesting loans for the purchase of new rides.
 
HOW TO GET FINANCING FOR NEW INVESTMENTS
by Enrico Fabbri

More and more Italian operators need to get loans from banks to buy and manage increasingly large attractions. Let’s then look at the problems when dealing with banks and what the possible solutions are.

Most operators have a fairly simple corporate structure; in most cases they are sole traders, i.e. businesses owned and operated by just one person. This type of company has the advantage of offering a simplified accounting system for calculating income tax. The disadvantage is that the owner is also personally liable for any kind of business debt and risk. So, for example, if an accident occurs, a sole trader risks losing not only the ride but also their personal assets.

A sole trader is not the best type of business for making large investments, especially because they do not publish official financial statements and therefore their debts are unknown. Banks, in fact, before granting a loan verify all the information about the applicant, including assets, income and existing debts. Only in this way can banks assess whether the applicant has the possibility to repay the loan. Therefore, all operators operating as sole traders – or unlimited partnerships (SNC in Italy) – will always find it difficult to obtain bank loans.

The business structure that best solves these problems is a limited liability company (SRL in Italy). This type of company operates regarding almost all aspects in the same way as a sole trader, yet unlike the latter, is obliged to publish financial statements with all the information that banks need. The bank will thus be able to see if company revenue has remained stable over the years and can analyse any existing debts. It will therefore be easy to analyse whether or not the company can afford other debts to buy a new attraction. If, for example, a company produces an annual profit of 50,000 euros, it is clear that it can buy an attraction for 400-500,000 euros and repay it over 7/8 years.

A limited liability company also has lots of advantages when families decide to work together. For example, each brother has his own company and can provide a guarantee to the others for major purchases, thus increasing the chance that the bank will grant the loan.

If the family has more than one attraction, they can decide whether to register all the attractions in the same company name, or create a company for each attraction.

Last but not least, historical information is also important. To grant a loan, banks require stability, so it will be important to evaluate the business results over the last 5 years. I therefore recommend setting up the best type of business in order to plan your future better.

 

 

 

Written by Mr. Enrico Fabbri enrico@fabbrirides.com
Article originally published in Games Industry (Italy) magazine
Original date: October 2017

#27