As the lenders are lending on ‘cash flow’, you can imagine they are very interested in how the business is going to operate as demonstrated by a good business plan. These business plans must generally be constructed by a specialist but are good to have for running the business anyway, so tend to be a good investment. Transworld M&A will assign one of our business modelling specialists to build the model in conjunction with doing financial due diligence. These lenders will generally also want to know that whoever is buying the business has the experience to run the business successfully. They are also familiar with the X-Factor leadership void that can be created when an owner leaves and want to make sure that is addressed and the business will continue to be profitable so payments can be made. The lender will also generally want the Buyer to have skin in the game and ask for a certain % of the initial capitalization of the transaction (i.e. closing payment to the Seller or investment in the business) to be paid out of the Buyer's equity funds. This tends to be 10-15% of the funds lent for example. They will often also want Personal Guarantees (PGs) from Buyers although these may not be for 100% of the loan and can be temporary. A lending consultant can help with all of this. These types of loans can make or break deals due to the amount they are willing to lend but of course, the capital + interest due can be a huge strain on cash flow so understanding whether this is viable is critical (this is covered in the chapter of deal structure). Government Backed Loans - There have been several government backed loan schemes, especially during Covid, that were very helpful in acquiring businesses as they reduced the risks for the banks so made them easier to get. These loans generally worked like term loans above with capital and interest paid over a period of time but did not require PGs below £250K for example. This type of loan still exists but with many constraints, so few people use them at the time of this writing. If you work with a lending
89
Made with FlippingBook - professional solution for displaying marketing and sales documents online