The applicant for financing to purchase a small business may think the profitable company to be acquired will impress any lender or financial institution with its substantial assets that can be used as collateral or because of its ability to generate cash for loan payments. While these certainly are important considerations, potential business business buyers are starting to discover that it is critical to bring a solid credit history of paying bills on time, having few if any credit inquiries, liens, etc. in order to get approval for financing to buy a business.
This is particularly the case with financial institutions that don’t rely on government guarantees for their business loans, as do those in the SBA lenders’ network. SBA 7(a) loan programs are granted to borrowers partly on the strength of the cash flow the acquired company will generate to pay off the obligation. That doesn’t mean SBA loans are being handed out to applicants who don’t have a good track record with respect to their debt management. But the ability to demonstrate a good history in handling mortgage, college and car loan obligations and credit card debt is especially important to the loan underwriters at financial institutions that aren’t granting SBA loan programs and are not required to follow the Federal agency’s lending guidelines.
The applicant who needs cash to complete the deal on a food business, service company, retail store or other kind of small or mid-market business should have a credit score of at least 650 in order to satisfy a prospective lender/financial institution/private investor. His or her credit record also should show a substantial amount of borrowing power, often demonstrated by low credit card debt in relation to the borrowing limit authorized by the institutions that issued the credit. And the borrower’s “clean” record, free of bankruptcies, liens or derogatory information supplied to credit reporting agencies, may make the difference between receiving financing approval or rejection.
The best and successful campaigns to receive funding to buy a business usually are best handled by a skilled and experienced Business Purchase Financing professional who is licensed to introduce a borrower to the right financial institution (or institutions) and private investors or those most likely to approve the request--and to do so in a timely matter so the buyer can meet financing deadlines in business purchase agreement contracts.
About The Author: For over 25 years Peter Siegel, MBA has provided niche business purchase financial advisory and loan broker services with SBA Loans, Non SBA Loan Financing, Retirement Plan Conversions, Hard Money, Gap/Bridge Financing, Note Restructures, etc. He assists with financing for: Business Purchases, Business With Real Estate Purchases, Franchise Resale Purchases, New Franchise Purchases, Pay Off Existing Seller Notes, Partner Buyouts, Employee Buyouts. He works with over 300 financial institutions, lenders, and private investors. Peter can be reached direct toll free at 888-983-1632 regarding getting professionally pre-qualified, advisory & loan placement services.