How to Get Lenders Attention

December 26, 2020

by a searcher from Upper Iowa University in Zephyrhills, FL, USA

I'm having trouble getting lending institutions to help me find ways to fund a business with less than 20% cash injection. They don't say that the business doesn't seem viable or that EBITDA isn't high enough.

This would be my first business purchase, and my third attempt at getting funding for a business. I hear a lot about LBO's but can't quite get the numbers right to secure that kind of financing. My credit score is 10 to 20 points below 800, depending on the agency.

Any advice or tools that I could use to maybe help me value a business in a way that would help with securing funds?

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Reply by a searcher
in Washington, DC, USA

Securing financing for a business purchase with less than a 20% cash injection can be challenging, especially as a first-time buyer. However, there are strategies and tools you can use to improve your chances of getting lenders' attention: ### Strategies to Attract Lenders 1. **Strengthen Your Proposal:** - **Detailed Business Plan:** Present a comprehensive business plan that outlines the business's potential, including market analysis, competitive advantages, growth strategies, and risk mitigation. - **Cash Flow Projections:** Provide realistic and detailed cash flow projections to demonstrate the business's ability to service debt. 2. **Highlight Your Creditworthiness:** - **Credit Score Improvement:** Since your credit score is close to 800, work on improving it further by reducing debt or resolving any discrepancies in your credit report. - **Personal Financial Statement:** Provide a strong personal financial statement to demonstrate your financial stability. 3. **Leverage Seller Financing:** - Negotiate with the seller for a larger portion of seller financing, which can reduce the required cash injection from traditional lenders. 4. **Explore Alternative Lenders:** - Look for alternative lenders, such as credit unions, community banks, or online lending platforms, which may have more flexible requirements than traditional banks. 5. **Consider Partnering:** - Bring in a partner or investor who can contribute to the cash injection, reducing your financial burden and potentially strengthening the overall financial profile of the purchase. 6. **Use Mezzanine or Bridge Financing:** - Consider mezzanine or bridge financing to cover the gap between the purchase price and the financing you can secure with a lower cash injection. 7. **Negotiate with the Seller:** - Consider an earn-out agreement or deferred payments based on future performance, which can reduce the initial cash requirement. 8. **Increase Personal Investment:** - If possible, increase your personal investment in the deal, even if it means using retirement accounts or other personal assets. ### Tools for Business Valuation and Planning 1. **Business Valuation Tools:** - **BizEquity:** An online business valuation tool that can help you estimate the value of a business. - **Valuation Resources:** Access industry-specific valuation guides to understand typical valuation multiples and factors. 2. **Financial Modeling Software:** - **LivePlan:** Helps create financial forecasts and business plans. - **ProjectionHub:** Assists in building financial projections for lenders and investors. 3. **LBO Modeling Tools:** - **Macabacus:** Offers LBO modeling templates and tutorials to help understand leverage dynamics. - **Wall Street Prep:** Provides courses and templates for building LBO models. 4. **Credit Improvement Services:** - Consider using credit monitoring and improvement services to ensure your credit profile is as strong as possible when approaching lenders. 5. **Business Advisory Services:** - Engage with a business broker or financial advisor who can provide guidance on deal structuring and valuation. By presenting a strong financial profile, exploring creative financing options, and using the right tools, you can increase your chances of securing the necessary funding for your business acquisition. Additionally, networking with lenders and demonstrating your commitment and understanding of the business can help build trust and credibility.

Reply by a searcher
from Harvard University in San Juan, Puerto Rico

Gary,

I think you could benefit from using a loan broker. They can help with getting your foot in the door and with your pitch to make it more sellable to lenders. Talk with a few of them to see if any are a fit for you.

Make sure you are also modeling out your deal the way a bank would too. They don’t care about crazy growth, they care about getting repaid, which means stress testing your assumptions and making sure it keeps hitting all their ratios. When you’re interviewing these loan brokers, they can go into more detail and send you some templates.

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