I once called the lender to check a buyer's pre-approval letter, the banker told me he had never heard of the person. This is rare, but I still check, every time. It costs one phone call and it happens before any buyer gets near my client.
Before I introduce a buyer to a seller I ask for two things. Proof of financial capacity, and an indication of interest. I have received letters along the lines of, we have looked at this buyer and would be very happy to help them finance a purchase. That tells me nothing. They might qualify for eight hundred thousand or for seven million. I also see a lot of letters that say that the buyer qualifies for an SBA loan up to 5MM. This is significantly better, but still not good enough for me.
What I want is a lender who has looked at the actual tax returns and profit and loss statements of the business, knows the good and the bad about the operation, understands the business model, and has said yes, we would support this buyer to purchase this business. If a buyer tells me his bank will not do that, my answer is to go and speak to another bank. There are plenty of lenders who understand exactly what we are asking for and why.
The indication of interest is not binding and it is not a negotiation. I want a range, and I want to know what else is in his head. What terms is this buyer expecting? How quickly can he close? Does anybody else have to approve this purchase? What does he expect from the seller in terms of transition and seller financing.
If a business is on the market at a million dollars and a buyer is thinking about five hundred and fifty thousand with a seller note attached, there is no reason to put my client through that meeting.
Sometimes I receive seventeen of these for a business, which then allows us to pick and choose who the Seller wants to meet. Sellers hire us so they can carry on running their business while we vet and narrow down the pipeline of interested buyers.
How else would you verify a buyer before your client takes time away from their busy schedule to speak with them?
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