Preparing for a Loan Interview

Before approving a buyer for SBA financing, most lenders will conduct a thorough interview to ensure that the individual purchasing the business is one who has thought through all aspects of the operation and who has the skills necessary to operate the business successfully. To prepare for a lender interview, here are some questions a buyer may like to consider:
    1. How and why did you decide to buy this business?
    2. What have you done in your past work experience to qualify you to run this business?
    3. Are you planning to make any changes in the business? Why?
    4. How do you know the employees will stay on and work for you?
    5. How do you know the customers will continue to do business with you as new management?
    6. Why is the seller selling the business?
    7. How was the purchase price determined?
    8. Is the inventory not outdated? How do you know?
    9. Is the equipment in good condition? Will you need to buy more?
    10. Are all the Account Receivables collectable?
    11. Who is your competition and how will you maintain and increase market share?
    12. What are the terms of your lease?
    13. Do you need a license to operate this business? If yes, will you have the license when you purchase this business in your name?

The widely used “Five C’s of Credit” will also be addressed by most lenders in their credit analysis and buyers should be prepared to discuss how they meet each “C”:

  • Character - Buyer should have good personal credit – no bankruptcies, arrests, tax liens, judgments and provide written explanations and documentation for any derogatory accounts.
  • Cash Flow - The business being purchased should demonstrate sufficient cash flow to cover proposed loan payments and support any owner’s salary.
  • Collateral - Some SBA lenders will focus on the cash flow of the business and not on collateral, allowing financing of up to 100% goodwill, but all buyers should be prepared to pledge their home as additional collateral.
  • Capital - Most SBA lenders require 10% - 20% cash down-payment from the buyer. This may be gifted funds. Some lenders may require as little as 10% equity combined with seller financing.
  • Conditions - Buyer should be prepared to discuss the local economy, competition and the prospects for the business in the future. A buyer who is prepared to answer the above questions and discuss how their transaction addressed all “Five C’s of Credit” will undoubtedly make the entire financing process go much more smoothly.

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