The lender's process, start to finish

The short version

• The lender's process runs alongside your due diligence. Start it as soon as you sign a letter of intent.
• It moves from application, to a term sheet, to underwriting, to approval, to closing documents and funding.
• The lender reviews you, the business, the deal and the collateral, and orders its own valuation.
• Most delays come from missing documents and slow answers. Have yours ready.
• Keep your lender, attorney and the seller's side talking to each other. Gaps between them cost time.

The stages

1. Pre-qualification. Optional, before you find a business. Lesson B3.3 covers it.

2. Application. After you sign a letter of intent, you submit the deal: the letter of intent, the business's financial statements and tax returns, your personal financial statement and tax returns, your résumé and a short plan.

3. Term sheet. The lender sets out the loan they are prepared to consider: amount, rate, term, fees, collateral and conditions. It is not final approval.

4. Underwriting. The lender's detailed review. They check the business's earnings against tax returns and test whether the business can cover the loan payments. They review you, order an independent valuation and other reports and decide on collateral. Lesson B8.2 covers the valuation.

5. Approval. The lender's credit committee approves the loan, often with conditions. For SBA loans, the lender either approves the SBA guarantee itself or sends the loan to the SBA, depending on the lender's status.

6. Commitment letter. The lender's written approval, with every condition that must be met before closing.

7. Closing documents. The lender's attorney prepares the loan documents. Your attorney reviews them and coordinates with the purchase agreement. Lesson B9.2 covers what you will sign.

8. Funding. At closing, the lender sends the money. Lesson B9.3 covers what happens at the table.

Running it alongside due diligence

Do not wait for due diligence to finish before starting the loan. Send your lender the signed letter of intent right away. Answer their requests the same week. Buyers who run the two in sequence add weeks to their closing.

What slows lenders down

• Missing or late documents from you or the seller.
• Numbers that do not tie to tax returns.
• A valuation that comes in below the price.
• Lease or license problems.
• Changes to the deal that the lender hears about late.