Unless you are wealthy or some rich relative or friend is anxious to lend you money to embark on this new venture–owning and operating your own business–chances are good you’re going to need financing from a bank or financial institution. The very thought of going though the loan process probably runs off many, many budding entrepreneurs.
So before you run the other direction, let’s take a look at the process.
Though every bank has their own list of documentation they request, all are similar and have most of the same requirements, especially if your loan is going to be through the SBA (Small Business Administration).
Initially, the bank will be looking at the seller’s records, evaluating whether the business is viable at the agreed on price. That gives you, the buyer, time to put together some kind of business plan. This is the biggest difference between banks. Some banks want a standard business plan; others give you a questionnaire designed to show things a business plan would but in a less formal way. (I.e., “Why are you interested in this business?” “How do you plan to increase revenues?”) Still others want variations or combinations of the two.
The next steps are fairly straight forward, no matter what financial institution you are dealing with. The bank will request tax returns for the last three years, the buyer’s (or buyers’ if there is more than one buyer) resume(s) and a personal financial (net worth) statement.
After that paperwork is delivered, every deal is different, based on the particular business. For example, if a building is included as part of the deal, a separate real estate purchase agreement will be necessary. If the current owner is financing any part of the purchase, a copy of the promissory note will be required.
After that, the buyer just needs to supply patience. That’s the really tough part of the process.