Basic Training Series (102)

“Integrity” it’s NOT optional

By Stephen Mariani

So much has changed over the 20 years I have been in the industry and I’m sure you’ve seen it change as well. When I think back to the days of the “local” broker helping assist a buyer and seller consummate a transaction I remember when all parties resided just a few miles apart. A simpler time when the brokerage firm on the corner was the only place to buy or sell a business and no one knew what a even was. Well, as we all know, nothing stays the same. Today it seems the last person in the loop is the broker as he is contacted AFTER a potential buyer looks over the published financials, done research on the industry, learned about the profit margins and cash flow, Etc., you get the picture. It’s a much different world with many different things and an overwhelming amount of data available. Once you secure a listing the seller’s next question is always, how soon will this listing be on the web? It’s almost like selling a house except it’s MUCH different and those savvy (or self-thought of as savvy) buyers sometimes become too smart for their own good and miss many valuable opportunities. When it comes to integrity and credibility, many of those same buyers are just looking for inconsistencies in that listing and reasons to look at the next opportunity.


Diamond Financial interviews more buyers around the country than anyone else and we want to share what we hear on the street from many of them so you can stay ahead. In the following months we will be sharing many different views from buyers along with things they look for and items that used to matter but don’t anymore.  This month’s topic of “integrity” is near and dear to my heart and may be to yours also but is something that buyers do not take for granted at all. My typical conversation with a potential buyer aims to earn their trust in the early stages. As we proceed through the application process we will require almost every intimate detail of our buyer, yes, including the arrest 23 years ago for stealing a cupcake from the local bakery at 16 years of age. I bring this up because integrity and trust is a key factor for us moving forward and without it, there’s no deal. Trust is NOT optional for us and should not be for you either.


If your buyer’s are like ours (and they should be, there the same) then they begin on the defensive early on and it’s almost as if we are the enemy. The way we approach buyers at DFS is to explain that we are always looking out for our buyers best interest and once we understand the transaction, we will provide the BEST available financing options to them whether this option includes us or not. Although you may not be able to make the same statement, today’s buyers want to feel that you have an interest in their future and are providing accurate information to assist them in their decision. The real question is how long does it take to build that level of trust and does it matter at all? The easy answer is it depends. If a buyer decides the business you have listed is not right for him or her will you engage them as a buyer’s rep to find them one that is more in line with their desires?



There is much controversy surrounding a buyer’s level of qualification. Most potential buyers will explain to brokers that the down payment and/or full selling price is “No problem” for them to come up with but how many times do we see that not be the case. If you are like most brokers across the country you spend a great deal of your time with a buyer initially just determining their actual financial capabilities. We want to share how serious lenders and Diamond Financial, doing much of the acquisition loans in the country, qualify buyers and how this helps you, the broker.


What we see being done is that most intermediaries have either created their own forms or been provided forms for the potential buyer to fill out and return along with the NDAs. This method works for most but the question becomes who reads these and determines the accuracy? If a buyer shows you a PFS with $200,000 as “cash on hand and in banks” who verifies this is true? Do you request banks statements as proof of funds? As you request additional information from your potential buyer the level of frustration typically builds on both sides. Below is a list of items Diamond Financial requires to qualify every buyer we work with, with no exceptions.


  1. Their SBA PFS (personal financial statement) signed by them and their spouse
  2. Bank statements supporting the amount shown on their PFS
  3. A credit release authorization or current credit report (they can supply it to us)
  4. Their current resume’ or CV
  5. PCFA (personal cash flow analysis) to determine salary level requirement


Without each and every item off the above list we cannot even begin to consider them a prequalified buyer and can never issue our DFS “Opinion letter” stating such. We do this to alleviate the burden from the broker and allow you to certify to your seller that an independent third party has pre-qualified this buyer. A very powerful statement and it brings even more credibility to that “offer to purchase” when they are delivered together.


Here is how we interpret the above once received


First we must determine the size of the acquisition they are exploring to understand the required down payment amount. If the business selling price includes less than 500M of goodwill then we will demand proof of at least 100M liquid (20% of the selling price). We then explore their current personal debt and living expenses to understand what level of salary will be demanded from the new business. We review their credit report and make sure it supports what they have disclosed in their provided documents.


If the selling price includes more than 500M in goodwill then we demand to see at least 25% of the selling price in buyer liquidity. We will consider IRA type accounts that can be rolled over to complete this requirement but WILL NOT consider the seller contribution or “seller note” when prequalifying a buyer candidate. Understanding that a seller note may in fact bridge the gap in down payment, we will not consider it upfront. Many times we see this negotiated in the beginning stages of an acquisition and can move forward with a client on a specific transaction but not for prequalification purposes.


Once the down payment has been verified, we review their resume’ for some relevant business operational skills and advise how to adjust it accordingly.  It is important to bring out the experience which relates to the acquisition they are considering.


It is only after all of the above that Diamond Financial will issue our buyer “Opinion letter” attesting to the fact that this borrower can purchase a business with a selling price up to X.


If your office does not require some level of prequalification then we highly recommend you start immediately as this saves much broker and seller frustration. If you prefer to outsource this research, there are many lenders, including Diamond Financial that can produce a prequalification letter for that buyer within hours of document collection for free.


When it comes to integrity, there is no substitution and it will always shine through. Again, it’s not optional. is always available for specific questions regarding this or other SBA rules.