Brokers asking buyers for a pre-qual letter or proof of funds is a 'trick question' that functions as a very effective 'litmus test' by the broker to find out if the buyer is inexperienced. Brokers are flooded with lots of inquiries, sometimes over 100 on each deal. They don't have time to interact with everyone so need to disqualify most of the inquiries. Ignoring inquiries and waiting for serious buyers to pick up the phone and call is one way they screen buyers. And asking for proof of funds/pre-qual letters is another. Experienced buyers know that this is a trick question and they don't provide either one. Inexperienced buyers think they actually have to provide this when they don't. Don't get sucked into the trap of answer/providing this. Everyone with any experience knows, as do the brokers who are asking, that proof of funds and bank pre-quals mean absolutely Nothing. The 'experienced' answer is to push back and 'call their bluff'. What the broker is trying to determine is if you are experienced or not. If you stand up, push back and talk like you know what you are doing, 90% of the time the broker will quit asking for stupid proof of funds and engage with you as a serious buyer. So, my advice is stop falling for the trick question, it only confirms that you are a newbie.
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by a searcher
in Rindge, NH 03461, USA
1yr ago
The Broker asked for Proof of Funds/Prequal letter....what do I do?
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by a professional
1yr ago
from University of Southern California in North Palm Beach, FL, USA
from University of Southern California in North Palm Beach, FL, USA
Thanks (again) ^redacted: This tip is from my book (on Amazon):
How to Prepare Yourself and Find the Right Business to Buy
How to present your financial statement. Some brokers want you to complete a personal financial statement before meeting with the sellers of businesses. Understand their need to qualify prospective buyers but how much information should you provide at this stage? Savvy buyers know how to present their personal financial capability.
If you show too much, you increase the probability that you’ll pay too much and make a larger than necessary down payment. If you reveal too little, you won’t get a chance to evaluate the company.
Here’s my advice, which might change on the basis of a particular client’s situation: • Don’t reveal your financial situation without first getting a signed NDA from anyone who will see your financial statement. • Don’t show your entire net worth. • Don’t, upfront, give sellers and brokers your complete financial statement.
Disclose all your liabilities and then make sure the amount of your assets, which you disclose, exceeds your liabilities plus the maximum amount of down payment you are willing to make. Maybe add the reasonable amount of working capital you’ll inject into the business immediately after purchasing it.
Later, to get their cooperation, you may have to show lenders and the landlord more of your net worth.
If the sum you show is not equal to the seller’s expected down payment, tell the seller (assuming you have more money) that you may add more money (don’t, yet, explain from where it will come). Or you could tell the seller you intend to use creative financing. (Contact me if you want a link to creative financing alternatives.)
How to Prepare Yourself and Find the Right Business to Buy
How to present your financial statement. Some brokers want you to complete a personal financial statement before meeting with the sellers of businesses. Understand their need to qualify prospective buyers but how much information should you provide at this stage? Savvy buyers know how to present their personal financial capability.
If you show too much, you increase the probability that you’ll pay too much and make a larger than necessary down payment. If you reveal too little, you won’t get a chance to evaluate the company.
Here’s my advice, which might change on the basis of a particular client’s situation: • Don’t reveal your financial situation without first getting a signed NDA from anyone who will see your financial statement. • Don’t show your entire net worth. • Don’t, upfront, give sellers and brokers your complete financial statement.
Disclose all your liabilities and then make sure the amount of your assets, which you disclose, exceeds your liabilities plus the maximum amount of down payment you are willing to make. Maybe add the reasonable amount of working capital you’ll inject into the business immediately after purchasing it.
Later, to get their cooperation, you may have to show lenders and the landlord more of your net worth.
If the sum you show is not equal to the seller’s expected down payment, tell the seller (assuming you have more money) that you may add more money (don’t, yet, explain from where it will come). Or you could tell the seller you intend to use creative financing. (Contact me if you want a link to creative financing alternatives.)
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by a searcher
1yr ago
from Ivey Business School at Western University in Toronto, ON, Canada
from Ivey Business School at Western University in Toronto, ON, Canada
You could get a comfort letter from some of your investors if you were in a traditional search fund. Otherwise I would just walk away, starting off a relationship like that has very little chance of going far.
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