Transaction reality · Before you buy
A lender can approve the loan without proving you should buy the business
Published · Reviewed by The Diligence Standard Team · Updated
Loan approval can feel like a second opinion on the entire acquisition. It is not. The lender and buyer are answering different questions.
How it appears in a real transaction
A lender evaluates repayment capacity, collateral, borrower strength and program rules. Its process can uncover useful issues. But the buyer still bears the operating, strategic and purchase-price risk after closing.
A practical example
A business may generate enough cash to meet the lender’s minimum coverage and still leave the buyer underpaid, undercapitalized or dependent on one customer.
What to do next
- Separate the lender’s underwriting from your investment decision.
- Build a realistic owner salary and replacement-labor cost into the forecast.
- Stress-test lost customers, lower margins and extra working capital.
- Ask which risks the lender did not evaluate.