How to Get More Business Acquisition Deals Approved

Business acquisition deals can be tricky. They don’t fit into an “easy yes” box for many financiers. That said, helping customers with a new business purchase can be rewarding — both financially and reputationally — and can set you up with a loyal customer driving referrals and future opportunities.

So how can you give your business acquisition transactions the best chance of a fast funder approval? Here are some tips to help you get those deals set.

The key to any successful application is collecting and presenting the right information. But before we dive into the specifics, it’s essential to understand the overall nature of the acquisition:

• The type of business — what industry is it in? What does the business do?
• How the acquisition came about — how did the purchaser hear about the deal? Why did they decide to buy this business?
• Business valuation — what is the valuation? How was it determined?

The easiest way to gather all this information is often an Information Memorandum (IM) produced by the selling party.

With the basics in hand, it’s time to look at the key information to collect. Getting it right the first time helps make a compelling case to lenders — and drives customer satisfaction with less back-and-forth through the approval process.

Key takeaway: Getting the information right the first time isn’t just about impressing the lender — it reduces back-and-forth and keeps your customer confident in the process.

Step 1 — Purchaser information

A profile of the buyers is going to be needed, with a quick summary of their asset and liability position. Really this is about cash, property equity, and shares. Capital to contribute to the purchase and equity to fall back on are big green ticks.

Credit history and banking conduct will typically be checked by the lender, but it pays to ask the customer first so that you can pre-empt any problems. If they have historical black marks on their credit file, or their bank statements don’t support the claims of equity they have to contribute, you should know about those things and run them to ground before the lender sees the application.

The big one is experience. A change in ownership (and leadership) can present serious risks — and opportunities — for any business. Lenders want to see what relevant experience the purchasers will bring. A short CV is often appropriate, but at the very least some supportable commentary around skills, experience, and qualifications should be included.

If the purchaser is heavily reliant on existing management staff, they should say so and include commentary around how they propose to retain those key team members.

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Step 2 — The target business

We’ve already touched on the broad aspects. Ideally you’ll have an Information Memorandum, but there are other documents you can use to describe and support the proposed purchase:

• Contract of Sale — always required at some point, and for smaller transactions where an IM isn’t available, it can cover key details around assets included, entity details, and purchase price.
• Financials — the latest accountant-prepared financial statements for the business being purchased. These contain the asset position, turnover, expenses, and profitability.
• Valuation — if any particular work has been done to establish the sale price or value, include it.
• Asset listing — if you don’t have an IM, a listing of tangible business assets with estimated fair-market values can be very useful.
• Tax statements — statements that support the turnover claimed in the IM or financials are a great way of verifying revenue (and that the business has kept up with its statutory obligations).

Tip: Tax statements are often overlooked but they’re one of the quickest ways to verify revenue claims independently. If you have them, include them — lenders love corroborating data.

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Step 3 — Presenting the information to lenders

Start with a couple of sentences that bring it all together. For example:

“John Smith is a qualified mechanic who has previously managed his own workshop. He has been employed by Joe’s Auto Repairs for the last two years but is looking to go out on his own with the purchase of a mechanical workshop near his home.

The business John is looking to purchase is Quick Stop Auto, a general mechanical workshop with two full-time employees. The purchase price is approximately $300,000 and was advertised on a business-sales website. John has $80,000 in savings to contribute to the purchase; he owns his own home with good mortgage conduct.”

Even before looking at the supporting information, your lender is singing your praises. You’ve given them who, what, why, where, and how much. Attach your supporting information from steps 1 and 2, and you’re almost ready to grab lunch and wait for your approval.

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Tricks and traps

Of course, the lender will need to verify the information provided — and we’ve assumed things like credit reports all stack up. But there are still a few traps for young players. The golden rule? No guessing games. Don’t leave the lender guessing when it comes to information you have, or should have obtained, but haven’t passed on.

• Financial forecasts — lenders want to show the borrower can service the loan and understands their financial commitments. A financial forecast (or better, an accountant-prepared forecast) shows not only how the business will pay its bills, but that the applicant has worked to understand their new business.
• Add-backs — if the previous director worked in the business, say so. If their partner worked in the business, say so. It might be OK to add back director wages when calculating value, but remember the new owner doesn’t live on fresh air. The business may need to support their wages and the acquisition debt.
• Entity structure — some ownership structures are simple, some not so much. If there’s a complex web of companies and trusts proposed as the new owner, make that clear early. Changes of entity type after funding can be costly — much better to get it right from the start.
• Security stack — it’s not uncommon to have multiple lenders involved. Make sure you provide a clear picture of what is being offered as security, to which party, and with what priority. Many deals come unstuck when the same security is offered to multiple lenders.

Key takeaway: The “no guessing games” rule is the single most important principle. If you have information that’s relevant — even if it’s not flattering — include it. Lenders reward transparency and punish surprises.

The 5 C’s of Credit

If in doubt, go back to the basics. You can be sure your lender is looking at the deal through a lens that focuses on these things:

• Capacity — show that the loan can be serviced by the borrower
• Collateral — what is the realisable security for the lender?
• Character — the credit history, banking conduct, and profile of the customer
• Capital — does the buyer genuinely have their own capital at risk? How much?
• Conditions — commentary on competition, location, industry, and the broader environment

The bottom line: A consistent approach that covers the basics will help you build customer and funder relationships and get more deals done. Once you have a reputation for thoroughness, transparency, and professionalism, your applications should sail through — first time, every time.