With over 14 years of experience, our business sales and transaction team has handled diverse M&A engagements. This article explores key challenges buyers and sellers face during business acquisitions and explains how a well-crafted Letter of Intent (LOI) streamlines the process for both parties.

Further Reading:

Common M&A Terms - Glossary for Buyer and Sellers

What is a Letter of Intent (LOI)?

An LOI is typically a non-binding document that outlines the key terms of an M&A transaction. While it allows buyers flexibility to withdraw during due diligence, it establishes a framework for negotiations and signals a moral commitment to proceed in good faith. Though concise—often just a few pages—an LOI is used before drafting a formal purchase agreement to identify deal breakers and clarify expectations.

Is the Letter of Intent - Binding or Non-binding?

The letter of intent should clearly state that it is non-binding, except for sections that are expressly designated as binding. Many LOI's create confusion because they are stated to be letters of intent only, but then are written as if they are binding agreements. Commonly only a few of the sections are designated as binding, such as exclusivity, confidentiality and obligation to negotiate.

Best Practices for Drafting an LOI

1. Settle key deal terms early in the LOI

Sellers benefit from locking in key terms, such as price, in the LOI, while buyers may prefer flexibility to adjust terms based on due diligence findings. Striking a balance is key: agree on terms contingent on due diligence to avoid vague agreements that could unravel later. Over-negotiating minor details (e.g., net working capital or warranties) in smaller deals (under $2M) can lead to early burnout, so prioritize simplicity.

2. Address Price

Sellers prefer a fixed price in the LOI, while buyers may propose a price range or formula based on due diligence outcomes. Clearly state the valuation method (e.g., “3x the average of the past three years of Seller’s Discretionary Earnings (SDE)”) to ensure transparency.

3. Define Assets and Liabilities

Specify major assets included in the sale, liabilities assumed by the buyer, and any assets excluded. For stock sales, identify assets or liabilities to be removed before closing. Consider addressing purchase price allocation for tax purposes, as buyers favor depreciable assets, while sellers prefer allocating to goodwill to minimize tax recapture.

4. Outline Financing Terms

If the deal involves financing, include:

• Whether the buyer is securing third-party financing (e.g., SBA loans) and contingencies.

• Details of any seller note, including terms or bank requirements (e.g., standby note).

• Buyer’s equity contribution (typically 10-25% of the purchase price).

• Name and contact of the financing institution and proof of pre-qualification.

Example Resource: SBA Financing Example

5. Establish an Exclusivity Period

Buyers often request an exclusivity period (45-120 days) to prevent sellers from negotiating with other parties during due diligence. Sellers should only agree if confident in the buyer’s commitment, as exclusivity removes the business from the market and may weaken leverage with other potential buyers if negotiations fail.

6. Ensure Confidentiality

Include a confidentiality clause (or reference a separate non-disclosure agreement) to protect sensitive information shared during due diligence. Specify that confidential data can only be used to evaluate and complete the transaction.

7. Address Representations and Warranties

While a comprehensive list of representations and warranties isn’t necessary in the LOI, include critical ones the buyer deems essential. Specify that the list is non-exhaustive and address key post-closing terms, such as survival periods, indemnification caps, thresholds, or carve-outs.

8. Define Closing Conditions

List key conditions for closing, such as obtaining government or third-party consents, non-compete agreements, or financing approval. Avoid exhaustive lists but ensure critical requirements are clear.

9. Consider a Termination Fee or Deposit

Buyers may request a breakup fee to cover due diligence costs if the seller withdraws. Sellers may require a refundable deposit upon signing the LOI or purchase agreement to ensure buyer commitment.

10. Address Post-Closing Obligations

Define post-closing terms, including:

• Real Estate: Specify whether the buyer is leasing or purchasing property and outline terms.

• Non-Compete Agreements: Detail scope, duration, and conditions.

• Training and Transition: Clarify the seller’s role, duration, and compensation (e.g., hourly rate).

• Due Diligence Milestones: Set deadlines to keep the process on track and minimize legal costs.

LOI Checklist for Buyers and Sellers

Below is a streamlined checklist to ensure all critical elements are addressed in the LOI. For a downloadable version, contact us at president@playbookadvisory.com

General Information

• Identify both parties (full legal names and contact information).

• Define the scope of the transaction.

• Specify the date and location of the LOI.

Terms of the Agreement

Price and Payment Terms:

• Agree on a purchase price, range, or formula.

• Specify cash paid at closing and any deferred payments or earn-outs.

Assets and Liabilities:

• List major assets included and liabilities assumed.

• Identify excluded assets.

• Outline preliminary purchase price allocation for tax purposes.

Financing:

• Detail financing terms (e.g., third-party loans or seller note).

• Note contingencies and provide proof of pre-qualification.

• Clarify equity contribution and any bank requirements.

Exclusivity Period:

• Define duration (e.g., 45-120 days).

• Specify terms and conditions.

Additional Terms

Representations and Warranties:

• Include critical representations, noting they are non-exhaustive.

• Address post-closing indemnification terms.

Real Estate:

• Clarify if real estate is included and whether it’s leased or purchased.

• Outline lease or purchase terms.

Non-Compete Agreements:

• Specify scope, duration, and conditions.

Training and Transition:

• Define the seller’s role, duration, and compensation.

Due Diligence:

• List specific requirements (e.g., licenses, customer contracts).

• Set milestones and deadlines to maintain efficiency.

Legal and Confidentiality

• Include a confidentiality clause or reference an NDA.

• Clearly distinguish binding (e.g., exclusivity, confidentiality) and non-binding sections.

• Define termination conditions.

• List key closing conditions (e.g., consents, financing).

Final Steps

• Review the LOI with legal counsel and revise as needed.

• Obtain signatures from authorized representatives.

• Distribute signed copies to all relevant parties.

Next Steps

A well-drafted LOI sets the stage for a smoother M&A process by aligning expectations and minimizing risks. For questions or assistance with your business sale, contact Jim Peddle at (312) 525-9622 or president@playbookadvisory.com.

Author: Jim Peddle, Business Broker
All Rights Reserved

Other Reading of Interest for Business Buyers:

SBA Financing Example

Business brokers specialize in guiding owners and buyers through the entire process of selling or acquiring a company. From confidential marketing to due diligence and closing, the broker acts as a trusted advisor to keep the deal moving forward while protecting your interests.

Who Does a Business Broker Represent?

Much like a real estate agent, a business broker typically represents one side of the transaction. In most cases, brokers represent the seller rather than the buyer.

Why? Confidentiality. Unlike selling real estate, advertising a business for sale publicly could damage relationships with employees, customers, vendors, or competitors. A broker’s role is to market the business discreetly and protect sensitive information while finding qualified buyers.

On average, a properly marketed listing generates 60–100 buyer inquiries over 3–12 months. From those, only a small percentage will be serious, financially qualified prospects. A broker’s network, marketing tools, and vetting process help narrow the field efficiently.

When a broker represents the seller of a business, their main responsibility is to identify potential buyers through various marketing channels, such as business for sale websites, digital marketing, and their own network. A typical listing generates 60-100 buyer candidates over the course of the sales process, which can last anywhere from 3-12 months.

Maintaining Confidentiality

Confidentiality is the backbone of a successful sale. A good broker ensures that only serious, pre-qualified buyers gain access to your company’s details.

• Every buyer signs a Non-Disclosure Agreement (NDA).

• Buyers provide background information and proof of financial ability.

• Only then does the broker share a confidential business summary and limited financial data.

This screening process saves time, protects your business, and helps avoid unnecessary disruptions.

All buyers are required to sign a Non-Disclosure Agreement (NDA) and provide background information to the broker. This information helps the broker assess the buyer's experience level and determine if they are a good fit for the business. Once the buyer is approved, they are given a summary of the business and limited financial information to help them determine if the opportunity meets their criteria.

Buyer-Seller Meeting

One of the most pivotal steps in the sales process is the initial meeting between the buyer and seller. This 60–90 minute discussion, held either in person or virtually, allows the buyer to ask questions and understand the story behind the business.

Following this meeting, serious buyers often move toward submitting an offer. At this stage, brokers may also request proof of funds or financing commitments to reassure the seller that the buyer is qualified.

Due Diligence

After an offer is accepted, the transaction enters due diligence—the stage where the buyer “tests” the business.

During this phase:

• Attorneys draft the Asset Purchase Agreement and related documents.

• A secure data room is opened for reviewing tax returns, contracts, leases, payroll, and other critical information.

• The broker coordinates communication, resolves issues, and ensures progress toward closing.

Strong broker management during due diligence can mean the difference between a deal that closes and one that falls apart.

Closing

The final step is closing. If bank or SBA financing is involved, approvals typically take 60–120 days. Transactions that also include real estate may take longer.

The broker works closely with lenders, attorneys, accountants, and both parties to ensure that all documents and conditions are in place for a smooth transfer of ownership.

Why Work with a Business Broker?

 Industry data shows that only 10–20% of businesses sell without a broker. With a broker involved, that number jumps to 25–30% or higher.

A skilled business broker helps you:

• Maintain confidentiality. (

• Attract and qualify serious buyers.

• Negotiate favorable terms and price.

• Manage paperwork and deadlines.

• Keep the deal on track from start to finish.

Ready to Sell Your Business?

Contact Playbook Advisory today for a confidential consultation and learn how we can help you maximize value and successfully navigate the sale process.

📞 (773) 243-1603 | ✉️ info@playbookadvisory.com

 Additional Reading:

7 factors to consider when selling your business?

 When buying a business here are strategies that work

An example of purchasing a business with SBA financing

Why Partner with Us? We understand the complexities involved in selling a business. Our expert team provides tailored support throughout the process, ensuring that you receive the best possible outcome and valuation for your company.

🔍 Our Approach

1. Valuation - We accurately assess the value of your business to set a competitive and fair market price.

2. Marketing - Our strategic marketing ensures your listing reaches qualified buyers looking to make a substantial investment.

3. Negotiations - We handle all negotiations, aiming to secure a deal that meets your financial and personal goals.

4. Transition - We support a seamless transition to the new owners, safeguarding the legacy of your hard work.

💬 Let’s Discuss Your 2025 Goals Whether you're ready to retire, or looking to pursue new ventures, we're here to facilitate a smooth and profitable sale. Contact us today to schedule a consultation and start your journey toward a successful transition.

🔗 https://www.playbookadvisory.com/chicago-business-broker

#BusinessSale #ExitStrategy #2025Goals

When selling a business that involves multiple owners, the complexity of the transaction can significantly increase. Without the right structures in place, such sales can easily spiral into conflict, with parties disagreeing over valuations, terms, and even the basic rights to sell or buy. A critical tool to prevent these issues and ensure a smooth transition is a buy-sell agreement. This agreement is not just a legal formality; it's a blueprint that guides all parties through the transaction's complexities, ensuring everyone's interests are safeguarded.

The Pitfalls of Avoiding Early Agreements

Business owners commonly avoid certain agreements when partnering or taking on investors for a business they start up or purchase, and this oversight can be quite costly when it's time to sell the business. Without a clear agreement from the onset, owners find themselves tangled in disputes that can derail the sale of a business they've worked hard to build.

What is a Buy-Sell Agreement?

A buy-sell agreement, also known as a buyout agreement, is a legally binding document between co-owners of a business that controls when owners can sell their interest, who can buy an owner’s interest, and what price will be paid. These agreements are designed to address all potential situations that could affect ownership of the business, such as an owner’s desire to retire, death, or decision to exit the business for other reasons.

Key Components of a Buy-Sell Agreement

The effectiveness of a buy-sell agreement lies in its detail and foresight. Here are some crucial elements that should be included:

• Valuation of the Business: The agreement should clearly define how the business is valued in the case of any owner’s exit. This can prevent disputes from arising between remaining and departing owners over fair price determination.

• Terms of the Buyout: Conditions under which the buyout will occur and the payment terms should be explicitly stated. This includes setting up financing arrangements if necessary.

• Trigger Events: These are predefined circumstances under which the buy-sell agreement would take effect. Common triggers include retirement, death, divorce, and disability among others.

Implementing the Agreement

Drafting and implementing a buy-sell agreement requires careful consideration and often the aid of legal and financial advisors. The process involves:

1. Negotiation: All parties discuss and negotiate the terms that will be included in the agreement. This stage is crucial for understanding and aligning the interests of all parties involved.

2. Drafting: Legal professionals draft the agreement, ensuring all legalities are properly addressed and that the document is binding.

3. Signing: Once drafted and reviewed, all parties sign the agreement, legally binding them to its terms.

The Impact of a Well-Crafted Buy-Sell Agreement

A well-crafted buy-sell agreement not only prevents conflicts but also facilitates a smooth operational transition. For instance, in a scenario where one partner wishes to retire, the agreement clearly outlines the process for buying out their share, ensuring that business operations continue seamlessly without legal hurdles or financial disputes.

Moreover, such agreements provide peace of mind to all business owners, knowing that there is a predetermined path forward should any significant changes occur. It allows business owners to focus on what they do best—running the business—rather than worrying about potential future disputes.

What does a buy-Sell agreement Cost?

The cost of a buy-sell agreement can vary widely depending on several factors, including the complexity of the business structure, the number of parties involved, and the jurisdiction. Here are some typical considerations that affect the cost:

1. Complexity of the Agreement: More complex agreements that need to account for various scenarios, such as multiple owners, different classes of ownership, and various trigger events, will cost more due to the increased legal work required.

2. Legal Fees: Attorneys typically charge either a flat fee or by the hour. Hourly rates can range from $150 to $500 or more, depending on the lawyer's experience and location. A flat fee for a simpler agreement might range from $1,000 to $5,000, whereas more complex arrangements could cost more.

3. Valuation Methodologies: If the agreement requires a business valuation, this can add to the cost. Professional valuations might range from a few thousand dollars to tens of thousands, depending on the size and complexity of the business.

4. Review and Negotiation: Costs can increase if there is significant negotiation between parties on the terms of the agreement, requiring more time from legal counsel to revise and finalize the document.

5. State and Local Requirements: Different states may have specific requirements that could complicate the drafting of a buy-sell agreement, potentially leading to higher costs.

For most small to medium-sized businesses, you can generally expect the legal drafting of a buy-sell agreement to cost anywhere from $2,500 to $10,000, though it's wise to budget for the higher end of this range if your business structure is complex or involves multiple parties. It’s always a good idea to get a few quotes from different attorneys to compare prices and services.

Conclusion

A buy-sell agreement is an indispensable tool for any business with multiple owners. It ensures clarity, fairness, and continuity in situations where ownership could change. For anyone contemplating selling a business or restructuring ownership, setting up a buy-sell agreement should be a priority, not an afterthought.

Business owners should always seek the expertise of legal and financial advisors to craft an agreement that suits their specific needs and provides comprehensive coverage for all potential scenarios. With a solid buy-sell agreement in place, you can ensure that the business thrives, even as ownership changes hands.

If you would like to learn more about this please contact Jim Peddle, Business Broker & President at Playbook Advisory Chicago at 312-525-9622 or email president@playbookadvisory.com.

1. Dress the Part:

• Clothes to Wear: Dressing in professional attire, or in a manner consistent with the industry you're interacting with, is crucial. It not only demonstrates your seriousness but also shows respect for the seller. Avoid overly flashy attire; instead, aim for a polished, neutral, and business-appropriate look.

2. Prepare Thoroughly:

• Do your homework on the business you're considering buying. This includes understanding the industry, the competition, and the company's financials.

3. Respect the Seller's Concerns:

• Confidentiality: Many sellers are concerned about information leaks that could disrupt their business operations. Assure them that all data and discussions will be kept confidential.

• Timeframe: Understand that sellers might be anxious about the length of the buying process. Be transparent about your timeline and intentions.

4. Be Aware of Buyer Concerns:

• Due Diligence: This is your opportunity to deeply understand the business. Ensure that you have access to all necessary records and documents.

• Valuation: Understand how the business is valued and be prepared to negotiate on price if necessary.

• Post-acquisition Plans: Consider how you plan to run the business after acquisition. This can impact negotiations and seller considerations, especially if they care about the business's future direction.

5. Top 10 Questions to Ask:

• Financials: Can I see the last three years of financial statements, including profit and loss, balance sheet, and cash flow?

• Client Contracts: Are there any long-term client contracts in place, and if so, can they be transferred to a new owner?

• Employee Relations: What are the current employee contracts, benefits, and morale? Are there any key employees I should be aware of?

• Business Assets: What assets are included in the sale? This could range from physical assets to intellectual property.

• Liabilities: Are there any outstanding debts, litigations, or potential liabilities that I should be aware of?

• Reason for Selling: Why have you decided to sell the business at this time?

• Market Position: How does the business compare to competitors in the market? What is its unique selling proposition (USP)?

• Growth Opportunities: Where do you see the most significant opportunities for growth or expansion?

• Challenges: What are the most significant challenges the business currently faces?

• Transition Period: Are you willing to stay on for a transition period to help with the handover? If so, for how long?

Meeting with a prospective seller is a significant step in the business buying process. Approach it with diligence, respect, and thoroughness to ensure the best possible outcome for both parties. For more tips and recommendations contact Jim Peddle at president@playbookadvisory.com.

Reps and warranties are a critical component of any merger or acquisition (M&A) transaction. They are representations and promises made by the seller regarding the current state and future performance of the target company, and serve to protect the buyer from any undisclosed liabilities or issues that may arise after the closing of the transaction.

In M&A transactions, the target company's reps and warranties may cover a wide range of topics, including but not limited to financial statements, taxes, contracts, liabilities, intellectual property, compliance with laws and regulations, and the absence of certain events such as pending lawsuits. These representations and warranties are typically outlined in the purchase agreement, which is a legally binding contract between the buyer and seller.

The purpose of reps and warranties is to provide the buyer with assurance that the target company is in good condition and that the buyer is not acquiring any undisclosed liabilities or issues that may negatively impact the company's value. If any of the representations and warranties turn out to be false, the buyer may be entitled to seek damages from the seller.

It is important to note that reps and warranties are not guarantees of future performance. They are simply representations of the target company's current state and conditions, and they do not extend beyond the closing of the transaction. This is why due diligence is a crucial step in the M&A process, as it allows the buyer to thoroughly examine the target company and verify the accuracy of the reps and warranties.

The level of reps and warranties offered by the seller can vary depending on the size and complexity of the transaction, as well as the negotiating power of the buyer and seller. In larger, more complex transactions, the reps and warranties may be more comprehensive, while in smaller transactions they may be less so.

Target Working Capital

In addition to reps and warranties, another important consideration in M&A transactions is target working capital. Target working capital refers to the amount of cash and other liquid assets that a target company has on hand at the time of the transaction. This is an important consideration because it can affect the buyer's ability to operate the company after the transaction is complete.

The target company's working capital is typically calculated by subtracting its current liabilities from its current assets. The buyer and seller will typically negotiate the target working capital amount that should be maintained by the target company after the transaction is complete. This can be an important factor in determining the purchase price of the company, as the buyer may require a higher purchase price if the target company's working capital is lower than expected.

It is important to note that target working capital is not the same as cash on hand. Cash on hand refers to the amount of cash that a company has available at a given time, while target working capital takes into account the company's current liabilities as well as its current assets. This makes target working capital a more comprehensive measure of a company's financial health and its ability to operate after the transaction is complete.

In summary, reps and warranties and target working capital are critical components of any M&A transaction. Reps and warranties provide the buyer with assurance that the target company is in good condition and free from any undisclosed liabilities, while target working capital affects the buyer's ability to operate the company after the transaction is complete. Both reps and warranties and target working capital should be thoroughly reviewed and negotiated as part of the due diligence process in order to ensure a successful M&A transaction.

A business broker has the expertise and experience to guide you through the process of selling your business. They have a deep understanding of the market and can help you determine the right price for your business. They also have a large network of potential buyers and can help you find the right buyer for your business. This can save you time and effort compared to trying to find a buyer on your own.

In addition, a business broker can maintain confidentiality during the sales process, protecting your reputation and reducing the risk of confidential information being leaked. They can also handle the legal and regulatory requirements involved in the sale, freeing up your time to focus on running your business.

Finally, business brokers are skilled at negotiating deals and can help you achieve the best possible price for your business. They can also help you navigate any challenges that may arise during the sales process, ensuring a smooth and successful outcome.

Hiring a business broker is a smart move for any business owner looking to sell their business. With their expertise, experience, and connections, a business broker can help you maximize your profit and ensure a smooth and successful sale. If you are thinking about selling your business in 2023 give our office a call to discuss fees, valuations and next steps.

Our office phone is 312-525-9622 or reach us at president@playbookadvisory.com.

• Over 10 Year Old Company

• Recurring Revenues

• Proprietary Software for Rentals and Sales

• SBA Pre-qualified

HD Media Equipment Rental Leasing & Sales - The company has over $1.25mm + in inventory/equipment onsite at its showroom facility. The company generates a significant amount of revenue from repeat clients that are well known in Chicago. You will work with Professional and Major League Sports Teams, Universities, and Fortune 500 Corporate clients that rely on the company to provide reliable equipment and gear to produce their media content.

In 2021 the company generated revenues of $1,600,000+ in 2021 and $1,700,000 in 2019 bouncing back from the pandemic 2020 that affected the Rental and AV industry. Contact us to learn more about this listing.

Business brokers specialize in guiding owners and buyers through the entire process of selling or acquiring a company. From confidential marketing to due diligence and closing, the broker acts as a trusted advisor to keep the deal moving forward while protecting your interests.

Who Does a Business Broker Represent?

Much like a real estate agent, a business broker typically represents one side of the transaction. In most cases, brokers represent the seller rather than the buyer.

Why? Confidentiality. Unlike selling real estate, advertising a business for sale publicly could damage relationships with employees, customers, vendors, or competitors. A broker’s role is to market the business discreetly and protect sensitive information while finding qualified buyers.

On average, a properly marketed listing generates 60–100 buyer inquiries over 3–12 months. From those, only a small percentage will be serious, financially qualified prospects. A broker’s network, marketing tools, and vetting process help narrow the field efficiently.

When a broker represents the seller of a business, their main responsibility is to identify potential buyers through various marketing channels, such as business for sale websites, digital marketing, and their own network. A typical listing generates 60-100 buyer candidates over the course of the sales process, which can last anywhere from 3-12 months.

Maintaining Confidentiality

Confidentiality is the backbone of a successful sale. A good broker ensures that only serious, pre-qualified buyers gain access to your company’s details.

• Every buyer signs a Non-Disclosure Agreement (NDA).

• Buyers provide background information and proof of financial ability.

• Only then does the broker share a confidential business summary and limited financial data.

This screening process saves time, protects your business, and helps avoid unnecessary disruptions.

All buyers are required to sign a Non-Disclosure Agreement (NDA) and provide background information to the broker. This information helps the broker assess the buyer's experience level and determine if they are a good fit for the business. Once the buyer is approved, they are given a summary of the business and limited financial information to help them determine if the opportunity meets their criteria.

Buyer-Seller Meeting

One of the most pivotal steps in the sales process is the initial meeting between the buyer and seller. This 60–90 minute discussion, held either in person or virtually, allows the buyer to ask questions and understand the story behind the business.

Following this meeting, serious buyers often move toward submitting an offer. At this stage, brokers may also request proof of funds or financing commitments to reassure the seller that the buyer is qualified.

Due Diligence

After an offer is accepted, the transaction enters due diligence—the stage where the buyer “tests” the business.

During this phase:

• Attorneys draft the Asset Purchase Agreement and related documents.

• A secure data room is opened for reviewing tax returns, contracts, leases, payroll, and other critical information.

• The broker coordinates communication, resolves issues, and ensures progress toward closing.

Strong broker management during due diligence can mean the difference between a deal that closes and one that falls apart.

Closing

The final step is closing. If bank or SBA financing is involved, approvals typically take 60–120 days. Transactions that also include real estate may take longer.

The broker works closely with lenders, attorneys, accountants, and both parties to ensure that all documents and conditions are in place for a smooth transfer of ownership.

Why Work with a Business Broker?

 Industry data shows that only 10–20% of businesses sell without a broker. With a broker involved, that number jumps to 25–30% or higher.

A skilled business broker helps you:

• Maintain confidentiality.

• Attract and qualify serious buyers.

• Negotiate favorable terms and price.

• Manage paperwork and deadlines.

• Keep the deal on track from start to finish.

Ready to Sell Your Business?

Contact Playbook Advisory today for a confidential consultation and learn how we can help you maximize value and successfully navigate the sale process.

📞 (773) 243-1603 | ✉️ info@playbookadvisory.com

 Additional Reading:

7 factors to consider when selling your business?

 When buying a business here are strategies that work

An example of purchasing a business with SBA financing

Are you in the market for a thriving and well-established digital marketing agency? Look no further! A rare opportunity has arisen to acquire a top-performing agency located in the heart of the Midwest.

With over 15 years of experience and a highly skilled team of designers, developers, and project managers, this award-winning agency has carved out a reputation for delivering outstanding results to its clients in the consumer, healthcare, and industrial sectors.

The company recorded impressive revenue figures of over $2 million in 2019 and is projected to see growth of 2-4% in 2020, according to the seller. This presents a unique chance for a savvy buyer to take the reins and steer the company towards even greater success.

What sets this agency apart is the dedication and commitment of its team, who are driven to continue expanding the client base and driving growth. This is a rare find in the world of M&A, and one that should not be missed!

Don't miss out on this exciting opportunity. Contact Jim Peddle, the business broker, directly at president@playbookadvisory.com or 312-525-9622 to learn more. Please note that all buyers must be vetted and approved, so allow 24-48 hours for this process.

Further Reading:

Are you considering buying a business but unsure where to start? Understanding the nuances of acquiring a business, from finding the right opportunity to securing financing, is crucial for a successful transition. Every purchase journey is unique, yet there are common steps and considerations that all prospective buyers should know. In this article, we delve into these critical aspects, using a real-world example to illustrate the process. We'll also provide a detailed breakdown of the costs, fees, and commitments involved in securing a lender, ensuring you have all the information needed to navigate your business buying journey confidently

The Deal Structure

First, a breakdown of the transaction;

• Purchase Price - $1,800,000

• Buyer Down-payment - $360,000

• Loan Amount - $1,440,000

• Earnest Deposit - $15,000 (Paid by Buyer at Letter of Intent)

• Working Capital Line Drawn at Closing $160,000

• Interest Rate - Prime Rate + 2.75%

Fees Charged by Lender

Lenders charge the borrower fees at closing as well as at application for an SBA loan. Buyers should always require a written commitment letter from the lender that breaks down the projected costs of the transaction.

Buyer Deposited $5,000 with Lender upon signing the commitment letter.

• Guarantee Fee Paid to Lender - Typical 3% or $43,200

  Note: SBA charges an upfront fee as well as an annual fee based on the loan balance. Currently, this rate is 55 Bps (.55).

• Lender Legal Fees - $5,000

  These charges are paid by the borrower to the lender for the loan only.

• Lender Processing Charges: (Bank fees will vary from bank to bank)

  Lien Searches $1,195.22

  IRS Transcripts $25

  Packaging Fees $2,500

  Wire Fees $150

• 3rd Party Business Valuation $2,500

• Site Inspection - Business $130

  Total Fees $54,700.22

  Note: Fees are financed within the loan

Working Capital - Other Adjustments

In most transactions, the lender will establish a line of credit for the borrower that is to be utilized by the borrower for working capital. There are no restrictions on this line of credit as long as the funds are utilized for business purposes. Rates can vary by lender but are the terms are variable and also tied to the prime rate.

• Amount of Working Capital at Closing $160,000

Customer Deposits

• $190,000 of Customer Deposits Credited at Closing to Buyer

Summary

In this real-world example, the buyer successfully completed the acquisition with a net payment of less than $10,000 at closing. This amount was achieved after accounting for a line of credit for working capital and adjusting for customer deposits. It is important to note that this figure does not include the buyer's attorney fees, which were not disclosed in the transaction details.

For more information on SBA financing or details on purchasing a business contact Jim Peddle, Business Broker, Playbook Corporate Advisory, Inc.

Further Reading:

• What is Seller Discretionary Earnings?

• Buying a Business- Moving to Entrepreneurship

• Best Practices for Business Buyers Meeting with Sellers

As a former mortgage broker, I understand the importance of educating buyers on their options for structuring a business loan. In my experience, financing a business is similar to purchasing a home and buyers need to be made aware of this. By instilling confidence in them, we make the process smoother and increase the chances of a successful transaction with their business acquisition lender.

The majority of businesses sold at Playbook Advisory are financed using a combination of three key components – a bank loan, the buyer's down-payment or equity injection, and a secondary loan from the seller, also known as a "Seller Note." This combination provides a flexible and well-rounded approach to financing a business purchase.

Let's delve deeper into these three components of structuring a business sale.

1. Bank Loan A bank loan is typically the primary source of financing for a business purchase and is usually an SBA 7A loan from a local banker. The lender will underwrite the purchase and assess the cash flow generated by the underlying business being purchased to determine if it is sufficient to cover the loan payments. The loan amount will typically be around 75-80% of the purchase price, similar to a home purchase.

For the loan to be approved, the cash flow, or Seller's Discretionary Earnings (SDE), must be greater than $150,000. If the SDE is less than $150,000, there are alternative options, which we will explore in a separate article.

It is important to note that terms for SBA 7A loans are competitive, so it pays to shop around and compare offers from 2-3 lenders before making a decision. Obtaining term sheets from each lender will give you a better understanding of the terms and conditions of each loan offer.

2. Buyer's Down-Payment: The buyer is expected to come to the table with a minimum of 10% of the purchase price but ideally, they should have 20% available in savings, retirement plans, IRAs, or real estate equity. Having a working spouse can also be beneficial as their secondary income can support household bills and monthly obligations, such as mortgage payments, school tuition, car payments, and other expenses.

3. Seller Notes: At Playbook Advisory, we encourage buyers to consider using seller financing as part of their business purchase financing strategy. Seller financing, in the form of a "Seller Note," is similar to a home equity line of credit (HELOC) that homeowners commonly use when they put less than 20% down on a home. The banks loan is ahead of the Seller Note which can cause issues with Sellers concerned about getting paid. Finally, there may be standby provision that does not allow the Buyer to make payments on their note until the first loan is paid down substantially or paid off entirely.

When a buyer sends us an initial letter of intent, one of the first things we look for is the amount of seller financing they are requesting. All of our business brokers are used to advising clients that they should be prepared to finance a portion of the deal, as seller financing provides numerous benefits. However, it is not uncommon for sellers to be hesitant about providing financing, as there is a risk of not being paid back. With lenders increasingly requiring full standby (no payments) for up to 5-7 years, sellers may feel nervous about this aspect of the deal.

In conclusion, prospective buyers should start talking with lenders and their business brokers as early as possible regarding their financing plans. By doing so it ensures a smoother process and leads to a successful closing.

“Who you engage to handle your legal issues in a business sale is really significant and I often see business owners choose an attorney who doesn’t have the transactional experience required to handle the deal. ”

If you’re the owner of a small business that’s interested in merging, acquiring or being acquired by another business, you need the proper legal support to ensure that you are getting the best deal possible.  These transactions are risky, but an experienced mergers and acquisitions attorney will earn their fees by minimizing risk at every stage of the transaction.  That’s why your Mergers and Acquisitions Attorney, along with your Business Broker and Accountant (CPA), should be a key player on your team whenever your business changes its structure.

What Can a Mergers and Acquisitions Attorney Do for You?

Your mergers and acquisitions lawyer will thoroughly research the other business so that there are no last-minute surprises.  They will conduct the negotiations over price and terms, drafting memorandums of understanding or letters of intent, so that you and the prospective buyer can see if there is a true meeting of the minds. The best mergers and acquisitions attorneys will get you to take off your rose-colored glasses as they explain the risks of the deals and ways to mitigate them.  They will review the contracts, such as a purchase agreement, to ensure that they adhere to all federal and state laws. Some deals will require the preparation of confidentiality and non-compete agreements or memorandums of due diligence.  They will prepare the company for the transition and advise you about your fiduciary duties and shareholder rights under the new business arrangement.

Mergers and Acquisitions Attorneys - From Start to Finish

Some business owners think that they don’t need to hire a Mergers and Acquisitions attorney until it’s time to close the deal.  This would be a serious mistake.  The best mergers and acquisitions lawyers come into the process early in order to help answer legal questions for a potential sale of a business. For example, they can explain the different options such as an asset sale vs. stock sale. In addition, tax or debt considerations or human resources issues (wage & overtime disputes) might mean it makes more sense to create a new business entity in a merger, winding down the existing companies.  Throughout the process, Mergers and Acquisitions attorneys keep an eye on all of the legal ramifications enabling you to focus on running your business all the way to a successful closing.

 To learn more about the benefits of an experienced M&A Attorney contact, Jim Peddle, at 312-525-9622 or by email at president@playbookadvisory.com.

 If you are interested in discussing your business with one of our attorney referral partners feel free to reach out to any of the three listed below;

Attorney Recommendations for Buyers & Sellers:

 Chicago Area Attorneys:

• Tom Winkler - Schaumburg, IL. ( Website)

• Jordan Uditsky (Website)

• Markus May (Google)

Outside Chicago:

Contact Jim Peddle for Attorney recommendations outside Chicago

Other Reading:

What to Know about SBA Loans

How Deals Get Structured

This 20+-year-old company services both small to large companies all over the Chicago area. The company is a non-union service provider that can handle all types of low voltage projects for clients. They have over the years serviced many industries as well as schools with all of their cable and wire needs.

The company has generated increasing revenues in 2019 and 2018 due to an increase in budgets and growth in the economy. Excellent opportunity for a new younger owner to step in and drive the direction of the company by leveraging its outstanding reputation and history of service.

Seller will train and transition the business to the buyer. Some seller financing available to qualified buyers. The deal has been pre-approved for SBA financing.

Contact Jim Peddle the listing business broker for more information or go to our active listings page for other opportunities.

Other Active Listings:

Request NDA from Broker

"In the business world, the rear-view mirror is always clearer than the windshield."

Warren Buffett, Berkshire Hathaway, Chairman

 What is the Purpose of Seller Discretionary Earnings? 

Understanding Seller Discretionary Earnings in Business Acquisitions

As a seasoned business broker, I frequently assist buyers in understanding the financial intricacies of businesses for sale. A significant aspect of this is explaining Seller Discretionary Earnings (SDE), a critical metric in our Confidential Offering Memorandums. Here’s a primer to help demystify SDE.

Transaction Assumptions:

• Asset Sale: Buyers typically acquire both the business and its assets, excluding cash, accounts receivable, and accounts payable. Negotiations may include working capital as part of the deal.

• Debt-Free Purchase: Buyers usually acquire the business without assuming any of the seller’s debt. Interest expenses are added back into the SDE since they aren’t inherited.

• Owner-Operated Business: We expect new owners to be actively involved. Absentee ownership requires a full-time manager, potentially reducing the business's sale price due to higher operating costs.

Understanding Add-Backs:

Add-backs are adjustments made to the reported net income to reflect the true profitability by removing owner-specific expenses. These can include:

• Personal benefits such as health insurance, vehicles, and travel expenses.

• Non-recurring expenses like one-time repairs or legal fees.

• Non-operational expenses such as interest payments.

Critical Aspects of SDE:

• Financial Documents: SDE calculations start with tax returns, but reviewing internal financial statements is crucial, especially if they differ from accrual-based official returns.

• Verifiability of Add-Backs: All add-backs should be clearly justified with documentary evidence like receipts.

• Comparative Analysis: Always compare like with like; for instance, internal profit and loss statements against tax returns to ensure consistency.

• Depreciation and Leases: Understand the treatment of depreciation and any equipment leases that may affect the SDE.

Common Areas of Dispute:

• Owner Compensation: A frequent point of contention is whether the owner's entire compensation package should be added back. Industry practice often differs from buyers' perspectives, especially when considering the necessity of a full-time manager under new ownership.

Example SDE Calculation:

Consider an owner's compensation structure:

• Salary: $50,000

• Add-backs: Phone: $1,000, Health Insurance: $7,000, Payroll Tax: $4,350, Auto: $7,000, Other: $2,100, Distributions: $125,000

• Total Adjusted SDE: $196,450

Conclusion:

Understanding the financials of a business is imperative for making an informed purchase. Prospective buyers should engage with qualified CPAs and not shy away from deep diving into the financial histories presented. This diligence ensures that the business's displayed profitability is accurate and sustainable.

For further inquiries or guidance on buying or selling a business, feel free to contact me, Jim Peddle, at 312-525-9622 or president@playbookadvisory.com.

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]]>An Explanation of Discretionary Earnings ("SDE")?Sale AnnouncementJim PeddleMon, 12 Nov 2018 20:58:01 +0000https://www.playbookadvisory.com/business-broker-blog/sale-announcement/wood-manufacturing587ea8f5e58c621b484a1d57:587ec80886e6c0a517b7e12a:5be9e3eb0ebbe885c5b5a0a2Exclusive Listing Generated 39 Buyers

“Our firm was selected as the Business Broker because of our past success working with the Sellers Attorney. It’s great working with Sellers who understand the value a firm like ours brings to the table. Our Success Fee Only model resonates with clients.” stated Jim Peddle, President, Playbook Advisory

Playbook Advisory announced the sale of another Chicago area company that was exclusively offered for sale by the firm. The second generation family owned business was marketed to Playbook’s extensive buyer network and went under contract in under 90 days. The listing quickly generated 39 buyers which resulted in 5 buyer meetings, three offers and a signed Letter of Intent (LOI).

“Confidentiality was very important so we worked outside normal working hours to deliver the results the Seller demanded. We successfully made it to closing without employees, vendors or customers learning of the pending business sale.” added Mr. Peddle.

If you are a potential seller of a family owned business contact Jim Peddle directly at 312-525-9622 to learn how we assist with the sale of a business. View more information at https://www.playbookadvisory.com/sold-listings/

Successful Chicago based contracting business

• Stellar Reviews on Social Media - Yelp, Angies List…

• Servicing Chicago North Side Residents

• Pipeline In Place

• Training & Transition Provided

This well-established, must see home and bathroom remodeling company is located in an affluent North Side Chicago neighborhood. The Company has steadily grown its revenues every year since its inception. The Company’s fantastic reviews and great web presence have allowed it to remain busy year-round, even during the months most other similar businesses experience slumps. The Company has multiple revenue streams including bathroom and kitchen remodeling, a full-time electrician for service calls, and a handyman division. The Company thrives in the middle ground between larger full remodels and small hourly jobs. 

The majority (approx. 80%) of the Company’s revenue comes from bathroom remodeling. This has allowed for the Company to focus most of its efforts and specialize in all aspects of the service. The other 20% of the revenue is made up of general remodeling, electrical and handyman repairs.

The Company’s primary customer base is middle to upper middle class residential and commercial clients. It has a large amount of repeat and referral business. Multiple real estate offices use and recommend the Company to their customers. The Company also receives many of its referrals from other trade contractors such as plumbers, larger contractors and its material vendors.

Interested buyers are required to execute an electronic NDA and provide a LinkedIn profile or resume prior to the disclosure of the name and location of the Company.

Inventory:

Not included in asking price

Real Estate:

Leased

Building SF:

3,000

Lease Expiration:

N/A

Employees:

19

Furniture, Fixtures, & Equipment (FF&E):

Included in asking price

Facilities:

The Company operates out of a 3000 sq ft office and workshop space plus 800 sq ft basement. 1500 sq ft is used for office and 1500 sq ft is used for a workshop and storage. The office space is very modern and outfitted with top of the line technology. The Company rents the space from a third-party landlord. The lease will expire at the end of 2018 with the opportunity to sign an additional 3 years.

Growth & Expansion:

There is a tremendous amount of growth opportunities for the business and industry. Adding additional sales staff, subcontractors and employees could drive revenue up even more. New services could be incorporated to drive growth. The Company currently sticks with bathrooms and small remodeling projects and has become very proficient in this one niche. It would be easy to add different trades to the business and expand the services offered. A few of the other services that could be added are HVAC, siding, windows, roofing, hardwood floors and many others.

Seller Financing: Qualified Buyers

$57900

Support & Training:

Mutually negotiated training and transition

Reason for Selling:

Other business interest

Interested buyers may contact Jim Peddle at 312-525-9622 or email President@playbookadvisory.com for more information.

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]]>SOLD!! Home & Bath Remodeling Company For SaleNew ListingsJim PeddleThu, 20 Sep 2018 21:45:14 +0000https://www.playbookadvisory.com/active-listings/opportunities/587ea8f5e58c621b484a1d57:587ec80886e6c0a517b7e12a:5ba409eeec212d0f1ed887e6Immediate Release:

Established supplier of janitorial and packaging supplies to Chicago area companies

• Located in Northwest Suburbs of Chicago

• Loyal Customer Base

• Revenues over $800,00 in 2017

• Seller Owns Real Estate

Great opportunity for a sales and marketing pro to assume this Independent Industrial Supply and Packaging business that is located in the Northwestern Chicago suburbs. For over 25 years the Company has served its business clients throughout the Chicagoland area by offering the best industrial and office products for competitive prices. It has remained an independent, family owned business and operates out of a single facility. 

The Company started out by producing and distributing its own line industrial packaging supplies but has since expanded into a myriad of paper products and other industrial and janitorial supplies. The Company now manufactures and distributes packaging and shipping supplies, janitorial and maintenance supplies, lifting and rigging products, and floor machine products. The Company also distributes other corporate brand name products on top of its own independently manufactured products. 

The Company currently has over 100+ accounts and generates recurring revenue from 40-50 businesses. Seller will provide training and transition to buyers as well as 10% seller financing to qualified buyers. Interested buyers can contact the Broker at president@playbookadvisory.com

Detailed Information

Inventory:

Included in asking price

Real Estate:

Owned

Building SF:

N/A

Employees:

5

Furniture, Fixtures, & Equipment (FF&E):

Included in asking price

Facilities:

The Company operates out of a single, 4,000 sq/ft facility that is owned by the seller.

Competition:

The Company works exclusively B2B with many returning customers. Almost all its new business comes from referrals from its current customer base. The Company has its own ecommerce website that allows its customers to purchase their products directly. The website also keeps its list of products available for purchase up to date and includes all the necessary Company contact information. It does not have many reviews on social media, but the reviews it has are all excellent.

Growth & Expansion:

The Company does minimal marketing and a new owner could easily expand the business by pouring more into the marketing budget and investing in online advertising and SEO. There is room for a small team of sales reps to be put in place to expand into other markets as well.

Financing:

23000

Support & Training:

Mutually negotiated training and transition – 6 months

Reason for Selling:

Retirement

Interested buyers may contact Jim Peddle at 312-525-9622 or email President@playbookadvisory.com for more information.

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]]>Industrial Supplier & Distribution Company for SaleBusiness BuyerJim PeddleFri, 15 Jun 2018 18:40:13 +0000https://www.playbookadvisory.com/business-broker-blog/where-can-you-find-a-business-to-buy587ea8f5e58c621b484a1d57:587ec80886e6c0a517b7e12a:5b23dcc16d2a737c4e4b07afOnline Resources To Assist Buyers in Search of a Business...

At our firm, we are contacted daily with Buyer inquiries for active listings that we have available for sale. By our estimates, over 65% of these prospects come from online ads, mainly from 3rd party websites. In this post, I' thought it would be helpful to summarize the different websites where buyers can identify opportunities;

Business Sales are Different than Residential Real Estate Sales:

First, Buyers should understand the market for selling a business is very different than when you purchase a home. Realtors have a Multiple Listing Service (MLS) that broadcasts the sale of their listing and also have an active company website that advertises pictures, listing details and financing options. Confidentiality is not required so Buyers see exactly what is for sale and for how much. This is not how business brokers sell companies below are platforms utilized by both business brokers and Sellers who are listing for sale by owner.

3rd Party Websites

• Bizbuysell (Largest website online)

  One of the largest 3rd party websites that is devoted to the listing and selling of businesses for sale in the United States. Business Brokers pay a monthly subscription to list and market their listings. Business owners can also sell by owner for a monthly rate. The issue for sell by owner is confidentiality is breached almost immediately as sellers respond to buyers inquiries. If confidentiality is important think twice about selling online. Best for businesses up to $5,000,000. Great majority of buyers utilize SBA financing on deals over $500,000. We love www.bizbuysell and Playbook Advisory is an active & elite member since 2016.

• Bizquest.

  Bizquest is a sister site of Bizbuysell.com and although they say they generate different buyers are experience is they are the same at least here in Chicago. Again, best for deals that are up to $5,000,000 and most buyers need SBA financing for acquisition financing. If you are choosing between the two sites pick bizbuysell. Our firm is also an elite member of the platform find our profile here.

• Businessbroker.net

  Another site similar to the above two but in our experience traffic is much lighter from businessbroker.net. We have generated successful buyers from the site so we continue to utilize the platform for our active business for sale listings.

• Businessforsale.com

  USA.businessforsale.com is a US & UK platform that our firm has not utilized in 2018.

• Dealstream

  Formerly knows as mergernetwork the site lists businesses a little differently and makes buyers register. Brokers can confidently use the site for generating buyers but in our experience they rank below the top 3 sites in this post. With that said the site has been working to make improvements but they need to clean up older listings that are no longer for sale.

• Axial

  Axial focuses on larger M&A transactions and works hard to generate listings of size ($5mm & higher). In our experience there are more tire kickers and the follow through is low from buyers on the site, however, our typical listing is not necessarily a match so our sample size is low. Very professional platform and Axial charges a premium to buyers searching for a business to buy.

• Equire

  Another site seeking to list companies with a minimum of $750,000 in cash flow (SDE or EBITDA). Our firm has not listed any companies on the site so I don’t have relevant feedback for the site.

As you can see, there are a number of 3rd party websites devoted to listing businesses for sale in the United States. We typically find buyers only concentrate on a few, however, it might make sense for buyers to monitor more than one or two in order to identify more opportunities.

Business Broker Websites:

Buyers can also receive listing information directly from local business brokers by signing up for the brokers listing alerts or newsletters.

At Playbook Advisory, we attempt to place buyers into the right bucket so that they only receive listings that are of interest, however, it’s fairly common for buyers to purchase a business they had no idea would be of interest so it helps to keep an open mind as you search.

If you contact us please let us know the following;

• Location you would like the business to be

• Amount of Cash Flow/SDE required

• Amount your willing to invest

• Are you interested in Financing a business purchase? We can refer you to qualified SBA lenders in the Chicago area.

Although I'm aware of other Chicago business brokers that might be good for buyers to monitor send me an email I will respond with some tips on who I think can help your search based on your area of interest.

The search for a business can be exceedingly difficult at times but the rewards are life changing. Contact Jim Peddle at 312-525-9622 to discuss your needs or email me at president@playbookadvisory.com.

Other Helpful Blog Posts for Buyers:

“What is Sellers Discretionary Earnings (SDE)?

“Keeping the Sale of a Business Confidential”

First Home Bank provides SBA 7(a) loans to a variety of businesses and for various purposes with business acquisition financing being a significant focus. As a top 10 SBA lender in the country, our team’s expertise extends beyond financing business acquisitions, and includes bankers with experience as both business owners/principals and financial advisors, making First Home Bank the first choice for business buyers seeking a financial partner to assist in an acquisition financing. We have compiled a list, a list we call the “Bankers’ Dozen”, of the most common roadblocks that come up during an acquisition transaction. The key is recognizing items that need to be addressed early in the process and discuss with your client and banker so there are no last-minute closing delays.

#1 No Creative Addbacks

• All addbacks must be documented through IRS tax returns and/or interim company financials

• Allowable addbacks can include:

  • Nonworking friends & family on the payroll if reported on W-2

  • Unusually high fees, legal or bad debt

  • Excessive owners compensation

  • Non-recurring expenses such as moving costs or product development expenses

#2 Seller Tax Return Verification

• Get a signed IRS Form 4506T from a seller on day 1. If there are any discrepancies that need to be addressed, the seller can begin to clear those up early in the process

#3 Comprehensive Business List of Insurance Requirements to Close

• SBA’s insurance requirements are not negotiable. Obtain a list from the seller of all business insurances currently in place. If insurances need to be added or amended to comply with the SBA, there will be plenty of time to be in compliance if an assessment is done upfront.

• First Home Bank prefers to work directly with the insurance agent to obtain required insurance certificates with the appropriate SBA language. This allows the buyer to focus on other deal-related items.

#4 Collateral Shortfall will require Life Insurance

• There’s no getting around this. If there is a collateral shortfall, life insurance in the amount of the collateral shortfall will be required for all guarantors.

• If the buyers/guarantors do not already have a life insurance agent, they can work with a “quick close” insurance provider as soon as the loan is approved.

• Sometimes the buyers/guarantors already have a life insurance policy in place. If so, make sure to collect copies of existing life policies and confirm that they are assignable.

• Provide the bank with contact information of the insurance provider so the bank can obtain the policy with the appropriate assignment.

#5 The Need for more Equity in the Deal

• As you are probably aware, the equity requirements for business acquisitions are changing with the release of the SBA’s new version of its Standard Operating Procedures (SOP 50 10 5(J)).

• While the SBA will be providing some additional insight into these changes, the basic change is that the buyer must contribute a minimum of 10% equity towards the entire transaction and there must be at least 10%
  equity on the post-transaction pro form balance sheet. A seller note can still be used and can provide for up to half of the required equity injection. However, the seller note must be on full standby (no payments at all) for the life of the SBA loan.

• If the source of the buyer’s equity is coming from a gift, a Gift Letter with 2 months of bank statements showing the source of this gift will be required.

#6 Seller Keeping AR & Cash at Close

• In this situation, the buyer must prove that they will have sufficient working capital at closing.

• If necessary, the loan could include a 90-day working capital supply.

• The Bank will need to document post-closing liquidity.

#7 Know Buyer’s Personal Credit Score

• If under 700, get a written explanation and make sure that there was no prior loss to the US government.

#8 Personal History Concerns

• A Resume and Statement of Personal History questions are required for each guarantor.

• The questions of “Have you EVER?” have no limitations on how long ago.

  • If “yes”, have the guarantor complete the SBA Form 912 and provide supporting documentation.

• Knowing issues early allows the Bank to clear through them during underwriting which can avoid delays

#9 Citizenship of the Buyer

• Determine the citizenship status of a buyer early on and get a copy of documentation early.

• They can obtain SBA financing if they have a green card and are legal permanent residents of the U.S.

#10 Leased Space & Landlord Subordination

• The term of the Lease must be equal to the term of the loan, and renewal options can count towards the term.

• Prepare the seller to discuss the subordination requirement with the landlord and assist with getting subordination executed by the landlord and buyer.

#11 Complete Equipment List

• Use the depreciation schedule in the seller’s business tax returns as the starting point.

• The serial numbers for all equipment over $5,000 must be included.

#12 Relevant Management Experience

• If the buyer does not have direct industry experience, obtain a detailed resume that expands on transferable management skills.

#13 Pledge of Personal Assets as Collateral

• If the business assets do not fully secure the loan, the SBA requires that any personal real property with lendable equity must be pledged as collateral.

• If there is no lendable equity, the pledge of the guarantor’s personal residence may not be required.

First Home Bank is a Top 10 Nationwide Preferred SBA Lender specializing in small business loans across a wide array of industries for business acquisitions, commercial real estate and equipment financing and working capital.

Other Reading;

Confidentiality - Why it’s important in M&A

 Where Can I Find a Business to Buy?