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Securing a business acquisition loan is key to buying a business, but the lenders would like to know the value of the business before they grant any financing. This is where business appraisal enters the picture. An appraisal from a professional eases the lenders’ ascertainment of whether the business is worth the investment and whether the loan amount requested is justified.
This blog will explore the interplay between business appraisal and loan approvals, what lenders look for in an appraisal, and how to achieve the most accurate and favorable valuation.
Relationship between Business Appraisal and Loan Approval
For a business acquisition loan, lenders seek proof that the business being purchased by you is worth what is asked. The business appraisal provides that proof based on financials, assets, and market position.
Here is why the appraisal is important for obtaining loans:
- Reducing Lenders’ Risks – Banks and financial institutions wish to make loans to businesses with solid value backing them. If they have details from professional appraisers in any investment they make, it builds their confidence.
- Justifying the Loan Amount – If lenders see that the business is worth $500,000 but you want to obtain a $700,000 loan, they may deny your application. An appraisal ensures that the amount being borrowed is consistent with the value of the business.
- Supporting Negotiation – With a low appraisal, there may be room to negotiate with the seller to lower the purchase price.
In Texas, a business appraisal is very important for financing; one strong appraisal might be the difference between the approved or rejected application.
What Lenders Look for in a Business Appraisal
In considering whether to approve a business acquisition loan or not, lenders weigh the major factors in determining a business appraisal:
- Financial Statements – These lenders want stable revenue, profits, and a healthy cash flow history. They will examine balance sheets, income statements, and tax returns.
- Asset Valuation – What contributes, directly or indirectly, to a business’s value are its tangible assets (equipment, inventory, property) and its intangible assets (brand reputation, customer base, etc.).
- Market Conditions – Valuation by market appraisers involves industry trends, local competition, and economic conditions that could affect future profitability.
- Owner Dependency – If a business relies too much on the current owner, its value may suffer because of the perceived risk of transitioning to a new owner.
- Growth Potential – Lenders prefer established businesses that continue to grow. If the appraisal supports the view that there is potential for expansion, the chances of getting the loan approved are higher.
Achieving an Accurate and Favorable Business Appraisal
Getting a good business valuation and availing of a business acquisition loan requires these simple steps:
- Organize financial records– Income and expenditure statements, tax returns, and profit and loss must be updated and correctly filled.
- Highlight core business strengths– In case of high customer loyalty, proprietary technology, or unique market location of the business, the appraiser should know these things.
- Work with a Professional Appraiser– Choose a qualified appraiser; being a specialist in small business appraisal in Dallas gives better reliability on the valuation report.
- Be Prepared for Due Diligence-Prepare answers concerning business activities, customers, and plans. Transparency builds lender confidence.
Final Thoughts
A business appraisal is of prime importance in securing a business acquisition loan; in evaluating their risk, lenders rely on it to ascertain the amount to be lent and decide on approval. A good appraisal increases your chances of obtaining funding for the prospective business purchase; therefore, it is paramount to have an accurate and favorable appraisal.
The Adam Noble Group can assist with expert appraisal and valuation perspectives if you seek advice regarding the business acquisition loan process. Call us today and find out more.
NOTE: The sale of a business is confidential and discreet; PLEASE DO NOT VISIT THE BUSINESS OR SPEAK WITH ANY EMPLOYEES. We know about many businesses that are for sale but might not be advertised. Check out www.adamnoble.com for more information and consider registering your criteria as a purchaser.
For information, reference Fort Worth Gutter Manufacturer for Sale 20512 and contact Matt Adam at Adam Noble Group, LLC
Phone: (972) 725-7200
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During 3 decades of M&A service, Jeff Adam has successfully completed the sale of over 825 businesses and advised or completed 1,000’s of business valuations and exit plans. An entrepreneur in his own right, he has started and grown 12 companies in fields including international finance, B2B services, business valuation, construction, screen printing, Mergers & Acquisitions, engineering, and manufacturing. Jeff has donated his time as a distinguished speaker at numerous national & international conferences since 1977 covering topics such as environmental services, engineering, media, craft breweries, exit planning, business valuation, charitable giving, management, business brokerage and M&A fields.
Jeff is President of Adam Noble Group, LLC, a national M&A Advisory firm, professionally valuing, exit planning, and confidentially selling profitable businesses owned by exit-motivated business owners to qualified strategic, corporate, private equity, partners, management, and financial buyers. The team establishes rapport, builds trust, and educates business owners in the steps to meet their goals as they prepare and achieve the discreet, confidential exit of their business. The firm exclusively represents sellers of $1M-50M value enterprises and endeavors to transfer their businesses to qualified, capable acquirers who will build upon the seller’s vision, goals, culture, and history. Jeff maintains lifelong repeat and referral relationships with sellers, their acquirers, and service providers.
Adam Noble Group has multiple M&A and business broker specialties: Manufacturing, Aerospace Defense Industry, Oilfield services, Technology, Construction trades, Craft Breweries, Partnership Buyouts, Service, and Wholesale Distributors.
We have successfully exited our own companies … we have walked in your shoes! Let us put the BIGGEST CHECK of your life in your pocket! Please contact us and we will confidentially answer all your questions. We will fully describe the process and answer all of your questions, all discreetly and with no pressure.
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