Starting finance talks early is crucial
Prior to beginning any discussions about purchasing a business, an acquiring company needs to ensure it has the funds to complete the deal.
Deal finance can be sourced in many ways, with the most common being a loan from a third-party lender for most or all the purchase price. Often, acquirers begin their search for financing part-way through the transaction, but it’s crucial to speak to lenders early to keep to your deal timescales.
Firstly, lenders will want to do their own due diligence on you and the target business. If your advisers know the lender’s needs at an early stage, they can incorporate this into their due diligence enquiries rather than risk the process needing to be restarted and possibly delaying the deal.
In addition, lenders will likely seek security over both the acquiring and target companies. This inevitably increases the deal timeframe as parties take advice on the type of security being sought. While this cannot be avoided, knowing about it earlier allows all parties to be realistic about when exchange is likely to happen.
It’s crucial to speak to lenders early to keep to your deal timescales.
The negotiation of the purchase agreement is often the most fraught step of the transaction due to buyer and seller looking to protect their risk allocation. However, when lenders are introduced late in the process, there’s a risk they seek to re-open negotiations to protect their position.
To summarise, a lender sets out the requirements that are fundamental to the loan being drawn down. If the lender is introduced early into the matter, their position can be reflected in the initial negotiations and delays can be avoided.
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