We talk to hundreds of potential franchise buyers every year about the process of purchasing a business. One of the most challenging conversations we have is about finding the right lender. The challenge comes in two versions. “I have been banking with my hometown banker for over 20 years. He knows me, and he’ll take care of me. I trust him.” Or this version: “I bank with one of the biggest and most prestigious banks in the country. I’m sure their size will make the process faster and easier.”
Two stories. Two sides of the same coin. And often, they’ll both be wrong. Here’s why.
For most buyers, purchasing their home has probably been the biggest and most complex transaction of their lives. Buying a business is much more complex, and first-time franchisees need plenty of guidance from everyone on their team, from business brokers like us to their accountant, lawyer, and lender.
We work hard to convince the buyer to let us recommend a lender for the purchase. We have years of experience putting deals together, and we know what it takes to avoid pitfalls and close as quickly as possible.
Here’s what we look for.
SBA experience. Large banks make many loans to small business, but they don’t often make SBA loans. In fact, since SBA loans offer lower interest rates and down payments, and longer repayment terms than ordinary bank loans, they may be considered less appealing for large banks. They may not even come up as options in discussions with your banker.
Understanding the SBA (7) lending program is essential to making sure the process moves smoothly. Both you and your lender must be aware of the documentation required for an SBA loan and make sure the documents are accurate, well-organized and delivered on time. We have relationships with lenders who know the process inside out and can make sure there are no delays based on misunderstanding of what’s needed and when.
Industry Experience. Bankers who don’t understand your business model may be less willing to take a risk on lending to you. As business brokers, we always take the time to pre-qualify the business with lenders before we approach them with potential buyers. When the lender understands how a company makes its money, manages cash flow, seasonality, and other business factors, they’re more likely to consider a loan. Starting this conversation from scratch with every new lender can be time-consuming – it's why we build relationships with bankers that have been there before.
Lenders are also wary of first-time business owners, so we look for lenders who have experience with and understand the franchise model. Many first-time franchise owners have long and successful corporate careers and management experience that gives them a strong foundation for running a franchise. They also get support and advice from fellow owners and the franchisor, so they aren’t working through their first-year challenges on their own.
The Size, Resources, and the Right Team of Professionals. Especially if you’re in a more rural setting, your hometown bank may not have the resources or the time to focus in on your business loan. Yes, relationships matter, but we’ve found that a lender with the right experience is often a better match, even if they’re located in another state. Business deals can be sensitive and competitive, so the longer it takes for your loan to get processed, the more chances there are to have the deal fall through. (Including finding another buyer with a more responsive lender.)
The lender must also have a team he trusts to verify all the documentation we’ve put together; he’ll order independent appraisals of the company’s assets, real estate, and any collateral the buyer is offering. Those take time to schedule, even with a group of skilled and motivated professionals. Finding a banker who has access to the resources and knows how to get the best from them on a deadline is essential to our success.
We’ve seen many cases of buyers who put their trust in their instincts, their relationships, or a great sales pitch, only to find out months later the deal can’t get funded. They lose time, lose confidence, and risk losing out on the opportunity altogether. That’s why we recommend that a buyer find a trusted intermediary or business broker. Look for a team that understands what it takes to get financing and what to expect during the process. Trust us to find the right lender to make your business ownership dream come true.