Talk to Target Companies Exisiting Banking Relationship

March 19, 2025

by a searcher from Butler University in Indianapolis, IN, USA

I had coffee with a Searcher this morning and recommended he get a term sheet from the existing lender of his target company. Banking is a highly competitive industry, and Bank's do not want to see quality companies they are already familiar with leave their portfolio. If the existing bank is not offering a highly competitive term sheet on the deal, you need to find out why the bank is so willing to let this deal leave, as there could be a myriad of issues related to the quality of the earnings or assets that you may not be aware of. A reputable seller should happily introduce you to his banking contact and let you ask questions such as how reliable the company has been in reporting, consistency of earnings, and other key metrics.

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

If you are looking for conventional financing, it definitely makes sense. However, if looking for conventional financing there are plenty of reasons an existing lender might not want to do the transaction. If it is a leveraged buy-out, they might not finance those. They might be comfortable with the current debt on the business but not be interested in a higher level of debt via an acquisition loan. There could be other relationships they have with the seller which is why they are in that business. The Bank could have just merged with another Bank and they could be looking at shrinking exposure in that asset type. Lastly, if you are looking for high leverage, the existing Bank might not offer SBA 7A loans if you are looking to utilize that product or they might not do it for a loan with heavy goodwill exposure (if the business has heavy goodwill exposure). So you have to dig into the reasons why an existing lender might not want to do the deal with the buyer, because there are many legitimate reasons for it.

Also, I would not expect a buyer to connect you with their lender under after an LOI is signed.

Reply by an intermediary
in Indianapolis, IN, USA

Makes sense unless the current bank doesn’t offer SBA loans and depending on the loan size they might offer SBA loans but not over $5MM.

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