What do lenders/brokers lend against?

searcher profile

July 06, 2021

by a searcher in Isleworth, UK

Hi,

I'm hoping to acquire my first deal soon. I have good deal flow and a few good brokers in my books. I'm looking at a few at accounts, aside from physical assets (equipment etc), subscriptions, real estate and unused government loans in the bank, I'm not entirely sure what other aspects of the business a broker/lender would look for in order to lend for the purchase. Any help would be gratefully appreciated.

Thanks!

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commentor profile
Reply by a searcher
from Harvard University in Colorado Springs, CO, USA
Most lenders will lend most of the purchase price against physical assets (collateral lenders), but a significant minority will lend against cash flow (cash flow lenders). Depending on the deal, you'll want to find collateral lenders and/or cash flow lenders because each has the ability to offer better terms than the other given different circumstances. ^redacted‌ at Fundex is a great cash flow lender. Most local/regional banks are collateral lenders, so you can just google those. Best of luck!
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Reply by a lender
in Yorba Linda, CA, USA
Nearly all SMB acquisition deals will require a cash flow lender because there will not be sufficient assets relative to the loan amount for an asset/collateral lender. A cash flow lender is looking primarily for historical debt coverage and a solid equity structure. There are also some lenders which will lend based on subscription or ARR metrics, and this is typically only used when EBITDA is as of yet, insufficient, but ARR growth is strong.
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