Qualifying the Buyer
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Qualifying the Buyer
Here at Crown Business Brokers, we are often asked by prospective sellers how we qualify buyers. Business brokers are paid for three things: confidentiality, assessing the value of the business, and not wasting the sellers time. Not wasting the seller’s time means ensuring that the prospective buyers that we present to the seller are qualified to buy, but what does this mean?
First, are they purchasing a business that they are qualified to manage successfully? Since almost all buyers will be procuring financing from either the seller, a financial institution, or both, it is extremely important that they have prior industry experience since lenders almost always insist upon this; they usually require experience of a managerial nature, although in some cases having worked in the business is sufficient. Most financial institutions will reject a loan if the buyer does not have industry experience.
Second, does the buyer have the requisite funds? Some brokers require that the buyer present proof of liquid funds prior to showing the business. Liquid funds mean funds on deposit in a savings account, money market account, or checking account in the buyer’s name or in the name of a business owned and controlled by him or her.
We generally do not ask for proof of funds prior to introducing the buyer to the seller, but we do ask for this prior to the deal going to contract. In the case of younger people, many buy a business with funds provided by family. If a prospective buyer is under 35, we generally ask them if family will be providing the down payment; if the answer is yes, we generally will want to speak to that family member.
Third, what is the buyer’s credit? A credit score of 650 is usually the minimum required for a financial institution to consider the loan, with 700 being the desired score. As is the case with proof of funds, we generally verify credit before the deal goes to contract.
Fourth, is the buyer a so-called “tire kicker”. If someone tells us that s/he has been looking for a business for over one year, we generally assume that this person is not a serious buyer. This is not to say that we will not work with him or her; it simply indicates that this person may not be serious about consummating a transaction. For some people, looking for a business to purchase is a hobby.