Loan to Purchase a Business

Recently we received a submission for a loan request to purchase a small business. Often business owners do not know what they need to do in order to complete a full due diligence analysis on businesses they would like to purchase. We were able to review the financials for the business and help the owner create a projection based on some assumptions. As a result, we were able to determine how much cash the business would need for the first year and ongoing from the owners. After about 4 hrs of consulting time we determined this was not the best option to pursue.

Although the price was right, the owner had plenty of experience and good ideas to improve the business; it just did not pencil out to be worth the endeavor. Had the perspective owner gone through with the decision to buy the business, it would have absorbed too much cash leaving the owner financially strapped or even bankrupt.

Make sure you hire someone to protect your interest when purchasing a business. Do not run into a “good deal” with blinders on. This will only hurt you in the long run. As a general rule of thumb, banks do not like to lend to turn around strategies. If the business is not performing, don’t expect to get a loan to buy the business. Some special cases exist but the norm will not allow it.

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