“My business banker told me to call your office.” The line was staticky and the lady on the other end of the call sounds unsure. She continued, “They declined me for a business loan but couldn’t tell me why. I’m so damn frustrated!” 

I chose not to jump into giving advice. Instead, I asked questions. I listened to what she wasn’t trying to say; she needed help with the basics of purchasing a business and her business banker, no surprise to me as it’s not their job, didn’t go over it with her. Heck. I’d be frustrated, too.

She breathed a sigh of relief. She continued, “I’ve gone to three different banks and taken tons of time trying to get financing to buyout my partner. Why banks these days don’t help business owners is anyone’s guess. I used to think we were the backbone of America. Now, I think it’s all a joke.”

Sometimes, people just need to rant. Sometimes, I let them. It’s part of building the relationship with potential clients. What I’ve found is that establishing a baseline of understanding for where the person is coming from, what they’ve had to deal with, and what they’re really frustrated about helps the long term trust factor. I cleared my throat as if to say, “Can I get a word in please?” 

“You went to three banks and they all turned you down? Hmmm… What is the actual lending request? What is the collateral behind what you’re trying to finance?” I am trying to get a clearer picture of what she’s trying to accomplish as this tends to help me understand why clients hit a wall with banks. It’s not easy to get financing for business owners.

She laughed as if she couldn’t believe I’d ask her such a ridiculous question. She quickly realized that she was the only one laughing and stopped. She regained her composure and spoke with a resounded confidence I hadn’t heard from her yet, “Matt. I need a loan for $745,000 to buyout my business partner. We run a medical practice and he’s already checked out. Time for him to go.”

Financing a partner buyout is just one financing need among many options that business owners need to be familiar with.

When you’re beginning the process of a partner buyout, you will want to consider a few important aspects up front. These are the same for any business loan:

1. Collateral
2. Capacity to repay
3. Credit
4. Current utilization
5. Bank confidence
6. Bank comfortability

Just because one bank may say, “no” to your lending request doesn’t necessitate that all banks will say no. Not all banks have the same credit window, the same evaluation process, and the same specializations.  

When a business owner needs financing for a partner buyout, a bank may want to better understand how this will impact the business moving forward. They’ll likely ask questions about the involvement of the exiting partner and  how the payments may impact cash flow.

Aside from the lending concerns, there are also legal concerns, tax implications, human resource considerations, and process adjustments. When we work with clients to go through partner buyouts, we don’t just focus on the lending. We want to ensure a successful transition. That’s why we lean on our team of experts to provide additional context to the conversation. It’s the team approach that many of our clients truly appreciate.

Many of our clients have told us that they appreciate the holistic support. They’re reminded of our tagline:

The outsourced CFO Team for businesses without a full time CFO.

Are you considering a partner buyout soon? Even if you’re just considering, you’ll want to ensure all your proverbial ducks are in a row. One of those is talking with experts who have guided dozens of business owners through a process like this already. Give us a call to discuss further.