SBA Tip # 9

Qualifying buyers UPFRONT and saving time

By Stephen Mariani

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.


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? 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.


a)      Their SBA PFS (personal financial statement) signed by them and their spouse

b)      Bank statements supporting the amount shown on their PFS

c)       A credit release authorization or current credit report (they can supply it to us)

d)      Their current resume’ or CV

e)      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.


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. is always available for specific questions regarding this or other SBA rules.