Buying a Restaurant with SBA Lending – What the Lender Needs

Posted by Robin Gagnon on Oct 11, 2021 4:53:20 PM

 

If you are buying a restaurant with SBA lending, make sure you are ready to go with this checklist of items the bank will need. Some will come from you and others will be submitted by the seller. Most of this is straightforward and simple to prepare and with the assistance of your Certified Restaurant Broker, can be submitted and final in a matter of days.

Buying a Restaurant with SBA Lending - What Every Lender Needs

SBA Form 1919 – Also known as the “Borrower Information Form from the Buyer

This form must be completed for everyone who will have more than a 20% stake in the business. Depending on how you form your organization that will be purchasing, that could include the officers, directors or management members of your LLC or corporation. It will always include everyone who must guarantee the loan. The SBA borrower information form is available for your review before buying a restaurant at this link.

Personal Background and Financial Statement from the Buyer

A second form required for lending when buying a restaurant is the SBA form 413 – the Personal Financial Statement. This is relatively straightforward and requires you to list all your assets. These include things like cash in the bank, stocks and bonds, real estate, and other personal property like automobiles and furnishings. These assets will be verified later in the process.

You will also list your liabilities which will include anything you owe on your assets. For example, your home is an asset, worth $300,000 but your remaining loan balance is a liability so if you owe $200,000, this would translate into net worth of $100,000 since all assets minus all your liabilities is your net worth.

You should carefully check your personal financial statement form to be sure it is accurate, and the math is correct since Assets minus Liabilities will equal your net worth.

The form also asks for items like contingent liabilities, where you may have signed for a note on behalf of someone else.

Business Financial Statements from the Seller

 The process of buying a restaurant with SBA lending means the seller understand he must provide full information and details. Here are the items that are required for the SBA from the seller. Your Certified Restaurant Broker will know how to assist in getting all of this over to the underwriter and lending department for approval.

 The bank is seeking to confirm that the business can not only demonstrate the ability to repay the loan, but also support the lifestyle of the buyer. Thus the following statements must be prepared:

Three Years of Federal Tax Returns

Note that the seller’s returns will be subject to verification with the IRS. They will be matched to the actual filings with the IRS before the loan is funded by using form 4506T. That form is signed by the seller and allows the IRS to provide the lender with a copy of the returns for comparison purposes.

Interim Balance Sheet
An interim balance sheet is a snapshot of the business financials at a point in time which will include all the assets and liabilities of the business.

Interim Profit & Loss StatementsBecause the last year has ended, the most recent profit and loss are referred to as “interim” meaning a partial year. These must be dated within 90 days of the closing date so the seller may have to update them multiple times based on how long the training program is and how long it takes to close the transaction.

Interim Balance Sheet
An interim balance sheet is a snapshot of the business financials which must be dated within 90 days of the closing date

Projections

One of the most daunting projects for our clients buying a restaurant is often the requirement for projected financial statements. Our Certified Restaurant Brokers have a template to help you quickly and easily provide an annual as well as a one-year monthly projection of each income and expense category from the profit and loss statement along with assumptions you made to reach the projections

Other Documents Required from the Seller

  • Copy of the Lease
  • Copy of the Franchise Agreement
  • Schedule of furniture, fixtures and equipment transferring in the sale
  • COVID Questionnaire - A new item required since the onset of COVID is the questionnaire that asks how the business has been affected by the virus and what changes if any, it has made to the financial picture.       This is good information for anyone buying a restaurant and invaluable to the lender in assessing the risk on the loan.

Buyer Income Tax Returns

The SBA lender will require three years of signed personal income taxes including all statements and schedules from anyone buying a restaurant. These, just like the seller’s returns, will be matched to what was filed with the IRS before the loan is funded using a form called the 4506T. That form is signed by the buyer and allows the IRS to provide the lender with a copy of the returns.

Resumes

All the principals in the organization buying a restaurant must provide a resume. It is important to include your relevant restaurant experience. It does not have to be recent to qualify but if your “professional” resume has removed all references to the four years of restaurant operations you did during your college years, add it back before you submit it over. Despite whatever you are doing now, that restaurant experience is relevant, and the lender is looking for it.

Business Overview and History

Often the Certified Restaurant Broker will be requested to send the offering memorandum or write up on the business which lists the business overview and history. That is another item the lenders will wish to see when you are buying a restaurant.

While this list can seem overwhelming for someone buying a restaurant, it is quite easy to pull together if your Certified Restaurant Broker is assisting in the transaction. Much of the “heavy lifting” comes on the seller side and good brokers have this information or can provide it very quickly within a due diligence window.

If you have questions about buying a restaurant with SBA lending and how to accomplish these tasks, reach out to We Sell Restaurants by email, phone, on social media or through our website.

We Sell Restaurants is the nation’s largest business broker franchise focused exclusively on the sale of restaurants, with 20 years of experience in helping buy, sell, and lease hospitality locations. We Sell Restaurants and its franchisees have sold thousands of restaurants across the county and maintain a listing inventory of more than $120 million online at their powerhouse restaurant for sale marketplace, including independent and restaurant franchises for sale. We Sell Restaurants is offering franchise opportunities for their brand in select market areas. For more information, visit www.wesellrestaurants.com

 

Topics: Financing a Restaurant

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