Brokers and "Proof of Funds"

searcher profile

June 07, 2023

by a searcher from Michigan State University in Kalamazoo, MI, USA

Hi All,

I am a self-funded searcher and have encountered a few promising broker deals (based on the teaser alone). However, the broker insists on only providing the CIM to "qualified buyers" that can show "proof of funds". I understand the desire to weed out tire kickers but this approach seems to outright deny self-funded searchers AND search funds.

Have any of you encountered this? and if so, how have you navigated?

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commentor profile
Reply by an intermediary
from University of Colorado at Boulder in Charlotte, NC, USA
There are a couple of things going on from the broker's perspective - especially if the listing is getting a lot of activity. First, the seller may limited what the broker can share without a buyer being vetted and qualified to acquire the business. Unfortunately, many searchers are looking for businesses and don't realize what they can and cannot afford. The broker may have his or her hands tied a bit....

Second, if the broker has a manual process it takes time... and they may just not have the time to personally vet each buyer so proof of funds saves them time.

Our process is automated - complete the NDA and the CIM gets sent. But we "white label" our CIMs so that the company's identifiable information is not provided (unless the seller wants it to be in the CIM). We usually get###-###-#### NDAs signed on our listings and out of that we might field###-###-#### serious inquiries. Before I invest a lot of my or my seller's time, I make sure the deal can be financed. But the buyer would have already seen the white-labeled CIM.

So I think it's reasonable for a broker or require it if they don't have systems in place to work around it like we do.
commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
1) In my 35 years I have never asked the individual buyer (including searchers) their PFS. I have other ways to test what I need to know from the buyer regarding their financial ability. I don't share CIMs before adequate buyer qualification even though they do not have client details.
2) Any buyer who says, "I do not need to share my financials", or "I do not need to buy this business", or something like that with an attitude, is politely removed forever from my radar.
3) A buyer needs to understand that before they can buy a business they will have to "sell" themselves to many people on the seller side including the broker. "Ability to close" and "ability to convince the seller that they can take care of their baby" is as important as the financial resources.
4) Some of the answers here is one of the reasons why few brokers are having negative feel for the searcher asset class.
commentor profile
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