Business Valuation Pitfalls: How to Qualify for Financing

The financing of a business is a relatively straight forward process, if you are aware of what lenders are looking for and generally what they will and will not do.  They will be looking at your credit, your experience and the sort of down payment you have and information about what sort of note the seller is willing to take back when selling you the business. 

As has been stated, the down payment on a business can be anywhere from 25% to 100% of the selling price.  Lenders will not lend you this down payment money on the business itself.  You will usually need to get this money from other sources, such as your personal savings, a family member, a retirement plan or other.  Your credit should be sorted out well before you start on buying a business.

Business Valuation Pitfalls

You want to handle any negative reports on your credit fully.  You do not want anything that is negative showing up when a lender is checking your qualifications.  Negative credit reports make them nervous.

You Need to have a Business Plan

Once you decide on the business you want, a business plan on the business is essential before approaching a lender.  They will want to see that you have some familiarity with the industry of the business and that you have some sort of management experience.

Information on the availability of management and executives in the business that is going to stay after you buy it and so on should be included in this business plan.  Also information on the training that the seller is committing to pass on with the sales of the business should be in this business plan.  If you handle these basics really well, it should be a relatively easy process getting qualified for the funds to finance a business.

Due Diligence Defined: The phrase is composed of two words.  Due, which the dictionary defines as “proper or adequate” and Diligence, which is defined as “Degree of care or caution expected of a person. Especially as a party to an agreement.” Caution: is the watchword in this definition.

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Image credit: danielfela iStock
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