Peter  Siegel

Article Summary:

Why you should get pre-qualified for financing before you put your business up for sale.

Before You Sell Your Business, Get Pre-Qualified For Financing

Selling a business takes time - talking to many potential business buyers, and knowing the right resources to close a deal. One of the most important things a business owner/seller, agent or broker should do is pre-qualify the business for financing for business buyers before they put the business on the market!

Most owners/agents/brokers usually response to this with, “why should I do that since it’s the buyers responsibility to get the financing.” If owners/agents/brokers only knew how long it can delay the process if buyers don’t go to the right financial institution/lender, valuable time that you can’t afford when other potential buyers are interested in buying the business!

When you get pre-qualified for financing it tells you several things about selling the business. First, if there is real potential for a buyer to get financing – so they can cash the seller out and they don’t have to take back a note, or that no business buyer has a chance to get financing based on your financial and tax information and that you’ll know you’ll have to take back a note.

It is good to know your options upfront before the negotiating starts on possible deal structures! Second, you’ll find out if the selling price is within the ballpark according to different lenders. No lender will loan on a business purchase if they feel the “ratios are not in line” with the selling price – a good indication if you should lower the asking price of the business.

Getting pre-qualified is simple. Submit the following info to several qualified lenders for review: 3 years business tax returns and financials (Profit & Loss Statement, Balance Sheet). Let them crunch the numbers and see if there is potential there for the right buyer to get financing based just on this information. Other factors are very important and need to be considered later like the buyer’s credit, work experience, down payment, collateral etc.

When I consult with sellers, agents and brokers this is one of the first steps I take when looking at the whole picture of selling a business. This process also really helps determine pricing and the structure of the deal, and what alternatives can be played out when the business hits the market for sale.

In getting prepared for financing you eliminate the buyer going to financing sources who may take too long, are not competent, or plain too busy for your deal. Remember time kills deals and you want to keep your deal moving – and stay in control of the deal.

Since a high percentage (70%) of small to mid-sized businesses don’t sell, this is one area you have control over as a owner, agent, or broker when selling the business, and you should make sure this step is taken care of before you mention your business is for sale to anyone!

Peter Siegel, MBA is a nationally known consultant and author - with over 25 years experience on the topic of selling, buying, and niche financing (the purchase of), small to mid-sized businesses. His latest book, "Businesses For Sale ? How To Buy Or Sell A Small Business" is available online and in bookstores. In 1994 he founded BizBen.com and later USABizMart.com ? two of the leading business for sale, business opportunity, & franchise for sale related websites, and he presently writes a syndicated small business blog at and produces a Podcast which focuses on issues, educational events, and information related to buying and selling small to mid-sized businesses.

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