Working With Business Brokers As A Buyer

Who The Broker Works For

A business broker is hired by the seller. Their job is to get the seller the best price and terms, with a buyer who will actually close. They are not your advisor, even when they are friendly and helpful, which most good brokers are.

That does not make them your opponent. A broker only gets paid when a deal closes, so they want a buyer who is qualified, organized and realistic. If you are that buyer, the broker becomes one of your best allies in getting a deal done.

Keep your own team for advice: a CPA for the numbers, an attorney for the documents, and a lender or SBA broker for the financing.

How Business Brokers Get Paid

Most business brokers are paid a success fee by the seller at closing, set in the listing agreement. On smaller businesses the fee is often around 10% of the price, and it usually steps down as deal size grows. Some brokers also charge sellers an upfront fee for the valuation and marketing work.

As a buyer, you typically pay the broker nothing. The commission comes out of the seller's proceeds. It still matters to you, because it affects how much cash the seller needs at closing, and so how flexible the seller can be on a seller note.

The Broker's Process, Step By Step

Most listings follow the same path:

1. Teaser. A short, anonymous listing on a marketplace or the broker's site, with the industry, area, revenue, cash flow and asking price.
2. NDA. You sign a non-disclosure agreement before you see the name of the business. Read it. Most are standard, but check for non-solicit terms covering employees and customers.
3. Buyer profile. Many brokers ask for a short questionnaire, your resume and proof of funds or a pre-qualification letter.
4. CIM. The confidential information memorandum: history, operations, staff, customers, financial summaries and the seller's add-backs. Our guide on how to evaluate a business listing shows what to look for.
5. Owner meeting. A call or visit with the seller, usually with the broker present.
6. Letter of intent. Your written offer with price, structure, financing and timing. See the business acquisition letter of intent.
7. Due diligence and closing. Once the LOI is signed, the lender underwrites, you dig in, and the attorneys draft the purchase agreement.

How To Get Taken Seriously

Brokers sort buyers quickly. The ones who get the next call usually do the same few things:

• Lead with your buy box. Industry, size, location and why you are a fit to run it, in a few sentences.
• Show you can close. Send a pre-qualification letter with your first serious inquiry. It tells the broker that someone who knows the SBA rules has reviewed your cash, credit and experience. Read more in the SBA pre-qualification letter guide.
• Ask for the right documents early. Three years of business tax returns, the year-to-date profit and loss statement and the balance sheet. A lender will need them, so you might as well review them first.
• Respond fast and be direct. If a business is not for you, say so politely. Brokers remember buyers who do not waste their time.
• Know the SBA basics. Brokers deal with SBA buyers all the time. If you can explain your structure in plain terms, they can explain it to the seller.

How A Broker Reads An SBA Offer

When your offer arrives, the broker translates it for the seller: how much cash at closing, how much later, and how likely it is to close. Here is how a typical SBA structure looks from the seller's side.

That last line is what the broker focuses on. A clean SBA offer with a small standby note is often more attractive than a slightly higher price with a big seller note or vague financing. Learn how the standby note works in seller notes on full standby.

Confidentiality And Multiple Offers

Sellers are protective of their businesses, for good reason. If employees, customers or competitors hear that the owner is selling, the business can suffer before it ever changes hands. So brokers enforce confidentiality strictly:

• Do not contact employees, customers, suppliers or the landlord without the broker's permission. Most NDAs forbid it, and it is the fastest way to lose a deal.
• Do not visit the business unannounced or tell staff why you are there. The broker will set up visits, often after hours.
• Share the CIM only with your advisors and your financing team. Lenders and SBA loan brokers handle these documents every day and expect to see them.

Good businesses often draw more than one offer. When that happens, the broker usually asks for best offers by a date and walks the seller through each one. Price matters, but so do cash at closing, financing certainty, timeline and how the seller feels about the buyer. A clear SBA structure, a pre-qualification letter and a short, sincere note about why you want the business can beat a higher number with loose terms.

Once you sign an LOI, you will typically agree to an exclusivity period, often 60 to 90 days, while the lender underwrites and you complete due diligence. Use it well. Our LOI to closing timeline shows what happens each week.

Questions To Ask The Broker

Brokers will answer more than you think, if you ask well:

• Why is the owner selling, and what is their timeline?
• How long has the business been listed, and have any deals fallen through?
• Do the add-backs in the CIM tie to the tax returns? (See SDE and add-backs.)
• How involved is the owner day to day, and who runs operations?
• Would the seller carry a note, and would they accept full standby?
• Is the owner willing to consult for a transition period?
• Is there real estate, and is it for sale or for lease?
• Are there other offers, and what does the seller care about most besides price?

What A Broker's Work Cannot Replace

Brokers often prepare a valuation or an opinion of value to support the asking price. Some listings are labeled "SBA pre-qualified." Both are useful signals, but they do not replace what the lender must do.

• The lender orders its own valuation. SBA requires an independent business valuation from a credentialed appraiser, requested by and prepared for the lender. The lender cannot use a valuation prepared for the buyer or the seller.
• A seller's Quality of Earnings does not count. When a Quality of Earnings report is required, at a Business Purchase Price of $3,000,000 or more, it must not be prepared by or for the seller.
• The lender verifies the numbers. The seller's financials are checked against IRS transcripts, and every add-back has to be justified by the lender.

If the price is above what the lender's valuation supports, the difference has to come from more Down Payment. Raise that possibility with the broker early, so it is not a surprise. See how SBA business valuations work.

Brokers And Your Financing Team

Good brokers like buyers who come with a financing partner, because it means fewer surprises. Once you have a target, we can review the CIM and returns, tell you whether the deal fits SBA financing, and structure an offer the broker can present with confidence. We work with 50+ SBA lenders, and our service is free to you. See how the loan works on our SBA business acquisition loan page, and look at a few deals we have closed:

Real loans we placed. Borrower and lender names are kept private. See all closed deals.