Buying business using Pledged Asset Line PAL

July 25, 2024

by a searcher in San Francisco, CA, USA

I am curious if anyone has bought a business using a Pledged Asset Line. If so, what are the terms and conditions? Are they similar to SBA lending criteria?

A potential buyer has approached me with interest in purchasing my business and shared a Pledged Asset Line email from his bank. I am unsure how to respond to this. Is it a viable proof of funding?

Thank you for your insights.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

It is possible that a buyer might have pledged assets to a Bank and secured a line of credit to use to fund a variety of needs including potential business acquisitions. They might have pledged cash, marketable securities, real estate, other business assets, etc. to secure such a line. Sometimes that line is setup where there are assets pledged to help fund deals but the lender still takes whatever is being purchased (in this case a business) as additional collateral on the loan. In those cases the Bank might still require some underwriting to be done on the business being acquired to be sure it meets the terms of the line of credit.

In some cases Banks issue what are called guidance lines of credit where they have pre-approved a borrower for future funding but have not actually documented that funding yet. In those cases they document the funding at the time an asset (again, in this case the business) is purchased. Usually there are also funding criteria around those pre-approvals.

My recommendation would be to request to have a conference call from the lender and get some sort of letter on letterhead verifying the funding available and the terms under which it can be disbursed. An email is not sufficient evidence of what has been approved. I hope this helps. Good luck.

Reply by a lender
in Stuart, FL, USA

Brad covered it perfectly, I have nothing to add...

+1 more reply.

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