Mergers and acquisitions expert

What Lenders Will Ask You For A Potential Business Acquisition

As you may know, business acquisitions can be a complex and challenging process, but they can also be a great way to grow your business and expand your market reach. One of the most important steps in any business acquisition is securing financing. When you're approaching lenders for a loan, they're going to ask you a number of questions to assess your risk and the potential viability of the acquisition.

Here are some of the common questions that lenders will ask you for a potential business acquisition:

  • Do you have a CIM with past 3 years financials?

A Confidential Information Memorandum (CIM) is a document that provides detailed information about the target business, including its financial performance, market position, and competitive landscape. Lenders will want to see a CIM to understand the business and its risks.

  • Do you have a LOI in place?

A Letter of Intent (LOI) is a non-binding agreement between the buyer and seller of a business. It outlines the key terms of the acquisition, such as the purchase price, payment terms, and closing date. Lenders will want to see an LOI to ensure that the acquisition is on track and that the buyer and seller are aligned on the key terms.

  • What will be the ownership structure after acquisition?

Lenders will want to know who will own the acquired business after the acquisition is complete. This will help them to assess the risk of the acquisition and to determine the appropriate loan terms.

  • Are you putting any downpayment for the acquisition?

A downpayment is a cash payment that the buyer makes to the seller at the closing of the acquisition. Lenders will want to know how much of a downpayment you are putting in to assess your risk and to determine the appropriate loan amount.

  • Is there any seller financing?

Seller financing is a type of financing in which the seller of a business agrees to finance a portion of the purchase price for the buyer. Lenders will want to know if there is any seller financing in place, as this will affect the amount of money that you need to borrow.

In addition to these common questions, lenders may also ask you other questions about the acquisition, such as your business plan for the acquired business and your management team's experience.

If you're planning to acquire a business, it's important to be prepared to answer these questions from lenders. By gathering the necessary information and documentation in advance, you can make the loan approval process smoother and faster.

Here are some tips for answering lenders' questions:

  • Be prepared. Gather all of the necessary information and documentation in advance, so that you can answer lenders' questions quickly and accurately. Have a complete data room in place.
  • Be honest and transparent. Lenders appreciate honesty and transparency from borrowers. Be upfront about your business plan, your management team's experience, and any risks associated with the acquisition.
  • Be confident. Lenders want to see that you are confident in your ability to successfully acquire and manage the target business.

Personally I believe lenders want to see you actually have some ¨skin in the game¨ and good industry knowledge.

By following these tips, you can increase your chances of securing a loan for your business acquisition.

 

mergers and acquisitions consultant