Deal dies. Fiery blaze. Lender yelling. Absolute cluster F*ck.
Here’s a story from one of my clients who started his QoE far too late and lost his deal in a fiery blaze.
Top 25 SBA lender yelling at my client… at the top of his lungs!
Here is how we got there and how to avoid it:
I was working with a new client who I noticed was anxious and lacked patience. Not uncommon for a first time buyer. But this person was a special case.
I explained how the QoE bridges the gap between messy SMB financials and the glossy CIMs brokers put together.
But this client wanted to go it alone. (at this point)
Side note: The QoE provides the bank with a properly formatted set of financials to help them understand the business.
As always, I advise waiting for the QoE to send financials to your lender.
Some people listen. But…
This client just couldn’t wait.
He immediately showed the lender unadjusted info.
Tax returns showing the biz is losing money.
Downright gruesome financials prepared by a high school graduate masquerading as a CPA. (mind blown emoji)
Then only after the lender balked did he start his QoE with us
You can see where this is going…
The lender had already found several issues that needed answers.
“Your CIM shows $700k in SDE but the taxes show the biz is losing money. Can you explain?”
“The SBA must go by the tax returns, we cannot lend on a business that’s losing money!”
Client couldn’t explain it.
We hadn’t even finished our 1st draft of the QoE
Once a banker gets a hold of numbers, it’s hard for them to get those numbers out of their head.
So the low balled numbers are still being shared during the bank’s approval process.
My client’s banker is getting pressure from his colleagues.
Why are you bringing this unprofitable deal to us?
But the CIM says $700k. But the bank can’t see a path there.
We get our first QoE draft prepared. The client shares with the lender.
The lender sees our work showing how the “unprofitable” business is still paying the seller good money.
But the lender is still stuck on “unprofitable” & “negative taxes”.
We thought we might get there. But the Client had started QoE too late.
The banker had already told his colleagues that lower number, and at that point, he didn't buy that our number was more accurate.
He wouldn’t underwrite based on that lower number.
Banker gets on call with us and the pressure is high with the back and forth. Then this 25-year veteran of SBA lending yelled at my client about $100k of add-backs on a $700k SDE biz!
When the yelling started, I knew the game was over
It didn’t have to be this way.
As buyers - you know the financials and taxes are terrible.
Make it easy on your lender to approve your loan.
Start your QoE early and give your lender the QoE as a guide to understand the business.
That process works!
MAJOR LESSONS LEARNED: