Overview
To become bankable and secure financing for buying a business, it’s crucial for the seller to introduce the management team to the banker. This allows the banker to evaluate their abilities and assess their potential to run the business without the owner. Transferring significant roles to the team ensures a smoother transition for new owners and instills confidence in their ability to succeed, which is important when financing the purchase of an existing business.
To create resources for buyers, incentive compensation such as phantom stock or deferred bonuses can be used to make a meaningful down payment that will help secure commercial financing. This approach allows the buyer to invest in the business while demonstrating their commitment to its success, making them a more attractive candidate for financing. By utilizing this strategy, the seller can improve the chances of securing financing and help the buyer become bankable, ultimately leading to a smoother acquisition process for all parties involved.
Transcript
Hi, this is Byron. I’m speaking to you
today from the banks of the Fremont
river, which flows through Capitol Reef
National Park in Central Utah.
I wanted to share with you today my
thoughts on how to make your buyer more
bankable.
And it’s three steps:
delegation, incorporating the lender
early
and selling ownership. Under the
delegation – when you’re thinking about
transferring control of your company, you
need to get your buyers in a position
where they can run the day-to-day. And we
ultimately need them to prove to the
lender which is step two that they’re
capable of running the business day to
day even in difficult times. So the
longer they’re in the seat, the more
compelling of a story you can make for
the banker why they’re bankable.
And then third
is to sell some ownership early, so
they’re building up collateral. So, three
steps: delegate and elevate, involve your
lender early, and sell ownership to bill
collateral.
