What do lenders want before financing a competitor buyout?

The target's numbers decide this deal more than yours do, which is the single most useful thing to know before you spend money on it. A lender underwrites the combined entity's ability to carry the new debt, and the seller's books are where an acquisition lives or dies.

• Three years of the target's business tax returns plus interim financials that reconcile to them
• A purchase agreement allocating price between assets, goodwill, and any real estate
• An independent business valuation, which the SBA lender orders regardless of the asking price
• Debt service coverage of roughly 1.25 times or better on combined cash flow after closing
• Your own industry experience, which carries real weight on an acquisition file

The usual structure on a $1.4 million purchase is a 7(a) over ten years with a 10% equity injection, and often a seller note covering part of that injection on full standby. Expect 60 to 120 days from letter of intent to funding, and expect the valuation to land below the asking price at least as often as not.

The warning: never sign a purchase agreement without a financing contingency, and never rely on the seller's add-backs until your accountant has tested them. Half the deals that fall apart die on add-backs that do not survive underwriting. Business Acquisition Loans and SBA Loans are the two routes here. Call the desk with three years of the target's returns before you make a formal offer.