CBB Buyer Qualification & Acquisition Financing Flashcards

What is a 'business plan' requirement in an SBA loan application for a business acquisition?

Answer: A document outlining the buyer's operational strategy, financial projections, and management plan for the acquired business

Lenders require a business plan to understand how the buyer will operate and grow the business and service the debt after acquisition.

What is 'mezzanine financing' in the context of business acquisitions?

Answer: Subordinated debt that ranks below senior bank debt but above equity, often used to bridge financing gaps

Mezzanine financing fills the gap between senior bank debt and the buyer's equity, often carrying higher interest rates and sometimes including equity kickers.

Why would a seller prefer an all-cash offer over a financed offer?

Answer: All-cash offers eliminate financing contingency risk and enable a faster, more certain close

Cash offers remove the risk that the deal will fall through due to financing approval failure, providing the seller with greater certainty of closing.

What does 'personal guarantee' mean in the context of a business acquisition loan?

Answer: The buyer's personal commitment to repay the loan even if the business fails to generate sufficient cash flow

A personal guarantee makes the buyer personally liable for the loan, meaning the lender can pursue the buyer's personal assets if the business defaults.

What is an 'equity rollover' in a business acquisition?

Answer: The seller retaining a partial equity stake in the business post-sale as part of the deal structure

An equity rollover keeps the seller partially invested in the business's future success, aligning incentives and sometimes reducing the buyer's required cash outlay.

What is the primary qualification concern for a buyer seeking an SBA loan with no prior business ownership?

Answer: The buyer must demonstrate relevant management experience or industry knowledge to offset the lack of ownership history

SBA lenders mitigate first-time buyer risk by requiring evidence of applicable management or industry experience that suggests competence to run the business.