Business Acquisition Financing: What Lenders Want

Financial leverage has consistently been one of the key success factors in expanding the pool of buyers and closing deals in the Craft Beverage industry. Fortunately for potential business owners, the SBA loan guaranty program is an excellent funding source for deals up to $5 million. Plus, lenders are lending now. A lender analyzes both the buyer (borrower) and the business being purchased. Tracy Sheppard, Senior Loan Officer at Live Oak Bank, shares 5 things lenders seek when evaluating a loan request for a small business acquisition.

  1. Positive Trend.  Nothing scares lenders more than negative sales and earnings trends in a business or its industry. Conversely, a pronounced positive trend is a thing of beauty to a lender. They often look back several years to see how the business performed through past economic cycles.
  2. Business Plan.  Buyers have to submit a basic business plan for the business they are acquiring. Lenders want to see an intimate understanding of the business and industry. In most cases a plan calling for modest growth and incremental change is the safest bet.
  3. Continuity.  Commitments by existing managers, key personnel, suppliers and customers to continue with the new owner represent reduced risk to a lender.
  4. Seller Training.  Lenders want to see a well thought-out management transition plan. The training/transition period can be anywhere from one to 12 months, depending on circumstances. Be sure to negotiate this point up front and clearly spell it out in the purchase agreement.
  5. Seller Financing.  When a seller finances even 10-15% of a deal, subordinated to the bank note, it shows the lender that the seller is confident in the business under the buyer’s leadership. This deal point is commonly imposed by lenders.