Make your business acquisition loan app bulletproof.

-AN ARTICLE to get you to a CERTAIN YES-

Want to be assured of an approval?

This article contains a lot of tough medicine.

If you’re a faint-hearted wantrapreneur who doesn’t want to do the work for success, delete this now.

Ok, the rest of you, gather ‘round.

While you may dismissively say that the best way to get approved for a business purchase loan is simply to NOT NEED the money, I am going to give you some constructive comments here.

AND- if you application doesn’t meet all the criteria, it’s ok, you can still use this list in order to prepare yourself for some of the questions you might get from a loan officer.

Let’s begin…

Debt service coverage ratio.

You need to show the lender that you will have more than enough cash flow coming in after your acquisition to make the payments.

Different lenders have different formulae for this.

Some will use different cash flow ‘levels’ ie EBIT, EBITDA, Net Income, Free Cash Flow, etc.

My rule of thumb is you want to have an EBITDA at least 2X the debt payments and more if it’s a capital-intensive business.

If you’re a first-time Main St. business buyer, there is another little secret that might clear the path to loan approval…

Make sure you can service the debt with your current salary.


I’ve had more than one loan office say to me ‘If the applicant earns a good enough income from their job to service the debt, even if they’re leaving their job to run the business, we know that person will likely get a similar job if the business fails and it opens ONE MORE avenue to collect the debt in the event of a failure.’

That’s an inside secret.

What if you can’t make the numbers work?

Add more equity from yourself or partners OR- the price has to come down OR- the seller has to accept some kind of mezzanine finance solution, ie standby debt that has no demand on cash flow.


If you borrow from a bank and they can see that there is ‘stuff’ that might cover some of the debt if things go south, then this makes them more comfortable.

The next best thing to collateral is a sovereign guarantee.

IE- a government agency backstopping the majority of the potential losses. (ie SBA loans and other progams in different countries.)

Meaningful Skin in the Game.

Bankers want to see that people with the ability to affect the business post-closing have something to lose if things don’t work out.

This creates motivation for 20-hour workdays and resourceful thinking.

So, you need to be able to show that you’re contributing significantly to the down payment in addition to any other investors you might have lined up.

It’s not just you.

If the seller is holding a materially-sized note on the deal, they count too since they’re experts in the industry and in the particular business.

Tortoise, not Hare.

If you’ve been on this list for a while, you’ll know that I often preach the dangers of rapid growth, especially if your business is operating-capital intensive.

Banks don’t like highly leveraged businesses that are growing quickly.

They like tortoises, not hares.

So, your forecasts should be slow and steady.

What if you NEED to grow to make the deal work?

Then you’ll have to demonstrate that this growth is risk-free.

Like, by signing a sales order with a new client before you buy the business and incorporating this into your cash flow forecast.

Yes, I’ve had clients do this before.

Whatever you do, don’t forecast rapid growth with no reason or story behind it.


Want your loan app to really shine?

Don’t put your last nickel into the deal.

Be able to show that you have even more resources that you can put into the deal if things go badly… or well.

Yes, what if your projections are blown away?

If you want to capitalize on growth, you’re likely going to need more capital.

Be ready to show this.

If you have investors, showing that they can put more in can also be helpful.

Personal Guarantees.

It amazes me how many people try to negotiate their way out of personal guarantees.

Especially broke blokes.

What are you trying to protect?

The requirement for a personal guarantee on a loan is a game of chicken.

It’s just a stratagem.

You see, if you sign the guarantee and things go poorly, you know you’re in trouble to you’re going to be more likely to commit more personal resources to try and save the business.

If the business fails and the bank sues you, you’ll lose your personal money anyway.

If you put all your money into the business and it still fails, you’ll have no personal wealth for the bank to go after, so the guarantee is worthless.

It’s only purpose is to secure your commitment to fight.

Unless you’re wealthy beyond the size of the loan.

In that case, your wealth is going to open the door to many more decisions about how you want to manage risk. Good for you.


Please, be able to demonstrate that you know something about the industry.

‘I’m going to hire an operator’ is something that only works in the Metaverse for most entrepreneurs.

Insider Status.

The ultimate experience.

You’re already a manager in the target company.

You’re the banker’s favourite candidate.

Now, if you don’t pass muster on some of these, don’t worry.

You now have time to prepare yourself for what you’re going to say or write in your business plan to address these weaknesses in the lender’s eyes.

When you do make the loan application, you want to be sure you’re armed with a comprehensive and complete cash flow forecast and a solid small business plan.

Small business plans are easy to read and quickly showcase why you’re the person to make this deal work.

If you need help with this, I recommend you take a look at my Cash Flow Forecasting and Business Plan Writing program.

Ask me in the comments and I'll share the link if you're intersted.


David C BarneTt

P.S. If you enjoyed this article, be sure to sign up for my DAILY email list where I send out similar thoughts, lessons, and advice about buying, selling, financing and managing small and medium-sized businesses.