Financing the purchase of a Business – What the Lenders look for!

Lenders look through all applications to determine RISK. If you have bad credit, the deal is perceived as HIGH RISK. If you are not providing the lender with the information they need then the deal will be perceived as HIGH RISK.

If you want to increase your chances of getting that loan, provide satisfactory information to the lender that addresses these 5 commonly overlooked areas:

1. The lender must have confidence that the new owner of a successful business will manage the business in the same way as it has been managed to date.

2. Lenders like to see systems in place that make the business work like clockwork.

3. Lenders like to understand the skill set of the new owner. Business experience is a definite asset. If the new owner does not have industry experience, as it pertains to the business being purchased, then the lender will want to look at the next level of management and their knowledge / experience level.

4. Some lenders like to see Vendor take backs. It is not critical but in effect reduces the RISK to the lender.

5. Finally, there must be a meaningful down payment and an understanding of were it came from. Less down, translates as more RISK. Higher risk, translates into higher interest rates, more security being requested by the lender (for example a Personal Guarantee), or a declined deal.

A Final Thought
I know one lender who watches out to see what car you drive when you pull up for the meeting. In their minds if you want a million dollars and your driving a piece of junk – it could be a red flag.

Whether you agree with this qualification method or not my point is that you must not overlook the details. Most importantly be HONEST! There are many methods used today to cross reference all the information within the application to ensure it is accurate and truthful.