Posted on: September 13th, 2019
Business acquisition loans are different from other garden variety loans. They are raised specifically for acquiring a business, and require careful structuring to ensure supportiveness and flexibility. Acquisitions can be a bit unpredictable, despite an abundance of due diligence, and can sometimes take a wrong during the integration phase that instantly puts the company in a vulnerable position.
These turns can and will be remedied by good management teams provided the business plan is sound and capital liquidity is strong. The key to capital liquidity strength is having the best form of business acquisition loan within your debt stack. Cash flow-based business acquisition loans, in general, are superior to asset based loans, due to the sophistication level of cash flow lenders.
When issuing cash flow loans that are largely under-collateralized, lenders are forced to understand the true franchise value of the business that drives the sustainability of the business model. Through thinking deep about what makes the borrower tick, these lenders have a stronger understanding of the enterprise value of the company, which allows them to provide a large loan size and a longer term.
This two-fold benefit of a larger loan and longer term provides significant capital flexibility and supportiveness. These lenders assume that their business acquisition loan will scale your enterprise significantly, in the manner you have successfully scaled to date. Through this sale up process, your enterprise value and cash flow value will increase, building assets and cash flow for ultimate repayment of the loan.
The cash flow lending perspective is one of dynamic growth wherein future asset and cash flow value provides the means for safe principal repayment. Lenders focus in on the quality of the growth or scale-up story and the quality of management, when deciding to lend. When they find a successful company, with strong management and a dynamic scale up opportunity, they want to get involved and lend. The trick is sourcing the right business acquisition loan, to ensure your ability to close and to integrate the acquisition. Here are the Attract Capital 3 keys to sourcing the right business acquisition loan:
- Articulate a strong scale-up growth plan – cash flow lenders fund into the growth so they need a well detailed explanation of your company differentiators and growth drivers. Tell a great growth story, and do it the old fashioned way by writing it out in clear, well written prose.
- Cover the lender market – successful business acquisition loan sourcing involves treating the activity like any outbound sales process. You need a large number of prospects to approach, and you need the right pitch materials for successful engagement. You need to at least reach 20 to 25 business acquisition lenders to generate several strong prospects.
- Pick the smart, patient lender – lenders have different ways of thinking and acting. Those that clearly understand your business and give you more time for repayment, are worth significantly more than others. Make sure you focus in on how well they learn your business and how they think about principal repayment.