CBB Buyer Qualification & Acquisition Financing Flashcards

What does 'equity financing' mean in the context of a business acquisition?

Answer: Funding the purchase by issuing ownership shares or using the buyer's own capital rather than borrowing

Equity financing involves the buyer contributing personal capital or bringing in investors rather than relying solely on debt.

What is a 'personal financial statement' (PFS) and why do brokers request it?

Answer: A comprehensive snapshot of an individual's assets, liabilities, and net worth used to assess financial capacity

A PFS shows a broker and lender whether the buyer has the net worth, liquidity, and credit standing needed to complete the acquisition and sustain operations.

When a buyer uses a combination of bank financing and seller financing, this structure is often called a:

Answer: Layered or blended financing structure

Layered financing combines multiple funding sources—bank debt, seller notes, equity—to meet the total purchase price when no single source suffices.

What is the key benefit of SBA financing over conventional bank loans for business acquisitions?

Answer: SBA loans allow lower down payments and can finance goodwill, making more acquisitions feasible

SBA loans enable financing of intangible assets like goodwill that conventional lenders typically won't fund, opening acquisition financing to more buyers.

What does a lender mean when they require 'collateral' for a business acquisition loan?

Answer: Assets pledged by the borrower that the lender can seize if the loan is not repaid

Collateral provides lenders security by giving them a claim on specific assets if the borrower defaults on the loan.

Which buyer profile characteristic most concerns a lender evaluating a business acquisition loan?

Answer: The buyer having no relevant industry experience and no management background

Lenders want confidence the buyer can successfully operate the business; lack of relevant experience increases the perceived risk of default.