21 Nov How To Help Clients Deal with Lenders
Steve Mariani recently joined us for a very insightful webinar entitled “Top 10 Financing Questions Every Broker Asks.” Mariani has 26 years of hands-on experience and has been involved in the realm of small businesses since 1978. His company, Diamond Financial Services is the largest leading source for larger business acquisition loans from $400,000 to $5,000,000 in the United States.
During the webinar, Mr. Mariani provided a range of insights and actionable information. He discussed the questions that he hears constantly from business brokers. One of the top questions is “What factors affect down payment amounts?” He responded, “The SBA requires a minimum of 10% down. We actually default to 15% as this gives me a little wiggle room in case the resume doesn’t fit or there is something that’s concerning the lender.”
He explained how lenders love to see post-closing liquidity as this makes the lender feel more secure. This liquidity can even extend to IRAs, as lenders feel that a borrower will tap their IRA if necessary. However, he pointed out that the single biggest factor that affects down payment is the buyer’s resume and direct industry experience.
Another interesting topic brought up during the webinar was in reference to spouses. Mariani talked about how he works hard to keep spouses off the transactions. He noted, “The reason that this is important is that anything the couple buys post-closing, if the spouse is not on my loan, is completely protected in the case of a default.” This point underscores the complexities involved in the loan process and steps that you can take to protect your clients.
Mariani noted that the number one problem he sees occurs when a landlord or a franchise will not approve the new buyer. In one eye-opening example, he told the story of a landlord that refused to extend a lease due to the fact that the landlord had plans to remodel the entire strip mall in which the business was located. This story underscores the fact that you need to be ready for a variety of unexpected problems and issues.
Tying into the topic of unexpected problems that can throw a wrench into a deal is obsolete inventory. Not too surprisingly, no one wants outdated inventory. Instead of watching a deal fall apart, Mariani suggests working to find a “happy medium,” between the buyer and the seller in terms of what to do with these kinds of inventory issues.
Ultimately, there are many twists and turns when buying or selling a business. This webinar emphasized the fact that you need to be on your toes and always looking out for what could go wrong. When you educate your clients as to what could go wrong and how best to prepare and work around potential trouble spots, this will make you invaluable. Keep in mind that lenders will want reduce their risk as much as possible. This fact will help you think about potential issues in advance and protect your clients’ best interests.
