Is this a serious buyer who can pay?

The short version

• A serious buyer can show where the money will come from, and can explain their plans for the business.
• Ask for proof of the cash they will put in and, if they are borrowing, a letter from a lender.
• A lender's pre-qualification letter is a good sign. It is not a promise to lend.
• Buyers using an SBA loan must put in at least 10 percent of the total cost of the purchase themselves, under SBA rules.
• Screen before you share details, not after.

What a serious buyer can show

Where the money comes from. Most buyers of small businesses use some mix of their own cash, a bank loan and sometimes a note you carry. A serious buyer can tell you the mix and show proof of the cash part.

Their lender. A buyer who is borrowing should be able to name the lender and share a pre-qualification letter. That letter means the lender has looked at the buyer and is open to the loan. It is not a commitment. The lender still has to review your business before approving anything.

Relevant experience. Running a business, managing people or working in your industry. None is required, but each makes the buyer more likely to succeed and more likely to be approved for a loan.

A plan. What they would keep, what they would change and how involved they would be. Lesson 7.5 covers their plans for your people.

The SBA minimum

Buyers using an SBA loan to buy a business must put in at least 10 percent of the total cost of the purchase from their own funds, under SBA rules. Total cost means the price plus closing costs and other costs of getting started. Lesson 8.4 covers when a note you carry can count toward that amount.

Ask how the buyer will cover their share. If they cannot say, their financing is not ready.

Proof, not promises

• Proof of funds: a recent bank or brokerage statement showing the cash they plan to use. Names and account numbers can be covered.
• A pre-qualification letter from a lender that makes business acquisition loans.
• A short summary of their background.

Ask for these before you share your confidential information memorandum (CIM), or at least before you share detailed records.

Warning signs

• They will not sign a confidentiality agreement.
• They cannot say how they will pay.
• They ask for customer names or detailed financials early.
• They push for a quick signed letter of intent before asking basic questions.
• They cannot name an attorney, an accountant or a lender.