Business Acquisition Loan Checklist: What Lenders Need to See

Buying an existing business can be faster and less risky than starting one, because the customers, staff and cash flow already exist. But it is also a large, document-heavy transaction. Lenders are underwriting two things at once: the business you are buying and you as its next owner. This checklist covers both.

How do lenders evaluate an acquisition?

Axelrad's Business Lending division states that acquisitions and partner buyouts are structured around the strength of the deal, including where an SBA program is the better route than our own paper. The questions behind that are consistent:

• Does the target's cash flow support the new debt? Historic performance is the starting point.
• Is the price reasonable? Supported by financials, not just the seller's hopes.
• Can the buyer run it? Relevant experience reduces transition risk.
• What is the structure? Your equity, any seller financing and the loan all need to fit together.
• What are the risks? Customer concentration, key staff, liabilities and lease terms.

The acquisition document checklist

The deal

• Signed letter of intent or purchase agreement
• Purchase price and what it includes (equity, assets, inventory, goodwill)
• Deal structure: your cash, any seller note and the requested financing
• Target closing date

The target business

• Business tax returns for recent years
• Profit and loss statements and balance sheets, including year to date
• Business bank statements
• List of all debts, liens and leases
• Accounts receivable and payable aging
• Customer concentration: what share of revenue comes from the top customers
• Key contracts, licenses and the facility lease
• Organization chart and key employees

Price support

• Valuation report, broker opinion or the method used to set the price
• Add-backs or adjustments to earnings, with explanations

The buyer

• Resume showing relevant management or industry experience
• Personal financial statement
• Evidence and source of your equity contribution
• Entity documents for the acquiring company, if formed

The transition

• Transition plan: who stays, what the seller does after closing and for how long
• Any non-compete or consulting agreement with the seller

Partner buyout vs third-party acquisition: what is different?

Axelrad's acquisition and partner buyout program covers acquisitions and buyouts.

When does an SBA loan make sense for an acquisition?

SBA financing can typically offer long terms and low down payments; Axelrad's SBA page lists terms up to 25 years, amounts up to $5 million and often only 10% down. The tradeoff is documentation and time. Consider SBA when:

• The seller's timeline allows a fuller review.
• The target's books are clean and well documented.
• You want to preserve cash with a lower down payment.

Consider a private structure when the seller needs speed, the deal has unusual features or the documentation is not SBA-ready.

What if the deal needs more than debt?

Some acquisitions are short on equity or need a partner to take a position rather than only lend. Axelrad's Private Equity division exists for deals that do not work as debt alone. Raise it early in the conversation if your structure needs equity.

How much equity should a buyer bring?

There is no single answer; it depends on the program, the deal and the lender. A few principles hold across most acquisitions:

• More equity lowers risk for everyone and usually improves terms.
• Seller financing can count toward the structure. A seller who agrees to be paid part of the price over time signals confidence in the business.
• SBA programs often need less down. Axelrad notes SBA loans often require only 10% down.
• Document the source. Lenders want to see where your contribution comes from and that it is not borrowed in a way that conflicts with the deal.

Model the deal at a few equity levels and see how the payment changes. The right structure is the one the business can comfortably carry in a slow year.

Red flags lenders look for

• Revenue concentrated in one or two customers with no contracts.
• Declining revenue over recent periods without a clear explanation.
• Large unexplained add-backs inflating earnings.
• A short facility lease with no renewal option.
• A seller who leaves immediately in a relationship-driven business.
• Undisclosed liabilities discovered during diligence.

Address each one directly in your file rather than hoping it goes unnoticed.

How do you speed up an acquisition loan?

• Send a complete package the first time.
• Reconcile the target's financial statements to its tax returns.
• Explain every add-back in writing.
• Document where your equity comes from.
• Align the purchase agreement's closing date with a realistic financing timeline.

Axelrad's page describes its buyout process as inquiry to funding in days; complete files typically move fastest.

Key takeaways

• Lenders underwrite the target business and the buyer at the same time.
• Core documents: purchase agreement, target financials and tax returns, debt list, price support, buyer resume, equity evidence and a transition plan.
• Partner buyouts usually need lighter diligence than third-party acquisitions.
• SBA can fit acquisitions with clean books and time to spare; private structures fit speed and complexity.
• Axelrad structures acquisitions around the strength of the deal, with private equity options when debt alone does not work.

Talk to Axelrad

Have a deal under letter of intent? Share it through the application or review our acquisition and partner buyout program. Axelrad Capital is a private lender funding business-purpose loans.