Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?
1, Don’t accept a cookie-cutter approach. Business owners should look for lenders who work to understand their goals and tailor solutions to their needs.
2, Experienced lenders know the complexities that come along with deals and can offer insights on market trends, deal structures and financing.
3, Volatility in the current market increases deal complexity and makes finding creative, experienced help even more important.
4, Asset-based, cash flow or SBA loans all are options for closing deals. Several factors, including the buyer’s experience, access to liquidity, and available collateral will determine the final recommendation.
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Preparing for an acquisition or another business transition is a pivotal moment for business owners. For owners doing their first acquisition there is a lot of unfamiliar territory to cover — from valuing the business they are acquiring to reviewing their internal controls to understanding how to pay for it.
Working with an experienced lender who has their best interests in mind is crucial when it comes to successfully, confidently and efficiently closing a business acquisition.
Business owners should look for a lender who works to understand their goals so they can tailor a financing solution that meets the business’s specific needs and financial situation. Because transactions are dynamic, with terms and conditions evolving throughout the process, business owners will want to have access to the decision makers at their bank. Connections to lending decision makers will help business owners overcome the inevitable roadblocks that pop up during a transaction.
The ideal lender should view their role as bringing a full toolkit of financing options and business expertise to the transaction conversation. Experienced lenders know that a transaction can be more than a business deal — it’s a step toward greater opportunity, faster growth, new products and markets. It also can potentially bring greater risk to the business. Bankers are there to help business owners make the most of this exciting time.
What to look for?
An experienced lender will have the necessary knowledge and expertise to help business owners navigate the complex process of acquiring a business. They can offer valuable insights on market trends, deal structures and financing options.
In addition, a bank with strong experience in acquisition financing for closely held businesses that is well networked with multiple outside advisers and consultants can make helpful connections when the borrower needs to supplement their expertise.
As businesses navigate the current period of increasing economic uncertainty and interest rate volatility, transactions can get more complex. Lenders need to get creative to help owners meet their goals. Responsive lenders who can get to a decision quickly are more important than ever in this market environment. Working with a bank that specializes in supporting growing businesses can facilitate all aspects of a transaction — it’s banking that takes businesses to the next level, with a personalized touch.
The most helpful lenders will take the time to understand the borrower’s objectives. A team-based approach to lending can be particularly helpful in getting to a creative solution — not just an individual lender’s preferred product. Each lender will bring their specialized expertise and financing solutions to the discussion to determine the best fit for the business and transaction.
Ultimately, they may present a range of financing options that could include SBA loans, traditional asset-based loans or cash flow loans. SBA loans are most often the best solution for many acquisition transactions involving closely held businesses, but there are times when a conventional structure, unconnected to SBA, makes more sense.
Several factors, including the buyer’s experience, access to liquidity and available collateral will determine the final recommendation. Because each business owner and opportunity is unique, look for bankers who tailor the experience to the situation and what is best now and in the future.
A good lender helps business owners understand the nuances of various financing options from upfront paperwork requirements to alternative financing structures to ongoing compliance. There’s a laundry list of variables when it comes to determining the best approach to acquisition financing. Here are a few that a lender may review:
Does the acquisition have a significant amount of blue sky (goodwill and other intangibles) or is the deal largely supported by tangible assets? Intangible assets can introduce more “air balls” into the transaction which will need to be managed. An experienced lender knows how to pin down those air balls while preserving flexibility in financing options. They may suggest various credit enhancements, such as an SBA guarantee, as part of getting to the right structure for the transaction.
What is the seller willing to do to enable a successful transaction? The seller plays an important role in a successfully executed transaction. They may choose to finance part of the transaction and they may offer to stay on after the transaction is closed to help with the transition. A seasoned lender can help the buyer understand how different financing options will fit best in the various scenarios.
What is the buyer’s relevant experience in the to-be-acquired business? A lender is assessing the risk of the proposed transaction and the buyer’s ability to run the combined business and meet financial targets. A less experienced buyer can be bolstered by a longer seller transition period post-transaction. A well-connected lender with a good reputation will often have an incredible network of partners who can advise buyers on financial and other integration areas, ongoing financial management, business operations and legal matters.
The transaction is just the beginning of a banking relationship. Experienced lenders can offer ongoing support and advice, helping the business owner achieve their goals and succeed in the long run. Business owners should look for a lender who will invest in the relationship upfront to ensure a smooth transaction to set up the business owner for future growth and success, because a successful business and banking relationship recognizes it must be about more than a transaction.
Business owners should have confidence that their banker will be alongside them through the good and challenging times because, as bankers, we partner with business owners we believe in and want to see them achieve and surpass their goals.
