Just Because Doesn't Mean It's Right

When purchasing an established business, many buyers turn to business brokers to help them navigate the process. While business brokers can be a valuable resource, buyers must be cautious when working with them.

Here are a few reasons why.

First, business brokers are typically paid by the seller, not the buyer.

Their primary goal is to close the business sale rather than look out for the buyer's best interests.

While many business brokers are ethical and professional, some may need to be more forthcoming about potential issues with the business, or they may be more inclined to negotiate favorable terms for the seller.

Second, business brokers may have a different level of expertise than buyers.

Business brokers are only experts in some industries and may have different knowledge or experience than buyers. This can make it difficult for them to provide accurate or complete information about the business listing.

Fourth, business brokers may need to gain experience or knowledge about the legal and regulatory requirements, which could impact the transaction.

Buyers must conduct their own due diligence on the seller by seeking and engaging reputable legal and bank financing advice OUTSIDE of whom the listing business broker is highly recommending.

Lastly, most bank and non-bank SBA lenders will pay the business listing broker a 1-2% referral fee based on the business buyer's SBA loan amount after funding.

This is why listing business brokers will push a business buyer hard to work with their SBA lender of recommendation.

Business brokers and their selected SBA lending partners work together behind the scenes to get the deal closed on behalf of the seller's interests and their additional individual incentives.

The SBA SOP requires all bank or non-bank lenders to provide a Fee Disclosure and Compensation Agreement form 159, which reports any 3rd party Agent fees paid by lenders or borrowers. Business Brokers receiving referral incentives from lenders must sign form 159 as well.

The Agent is a loan packager, referral agent, broker, accountant, attorney, consultant, or any other third party that aided in completing a loan application in the 7(a) program. The SBA form 159 isn't signed by the borrower and Agent until loan closing or shortly after that, as the final SBA loan amount determines the referral 1-2% referral payout.

Not all banks participate in the business broker buyer incentive referral program. Most do.

While business brokers can be a valuable resource, buyers should proceed cautiously and do their research when working with them.

It's essential to remember that the broker's primary goal is to close the sale for their engaged business seller, not to look out for the buyer's best interests.

Here are my Top Five 'Just Because' Statements for individuals in business buyer mode to keep top of mind:

1. Just because someone says something with authority doesn't mean it's true. Always question, always verify.
2. Refrain from blindly accepting what you're told. Just because someone says, it doesn't mean it's right. Do your research.
3. Just because a person is in a position of power doesn't mean they can't be wrong. Always question authority.
4. Don't be swayed by the rhetoric. Just because someone says something with conviction doesn't mean it's true.
5. Don't be swayed by popular opinion. Just because many people believe something doesn't mean it's right. Think for yourself.

A business buyer should keep an arms distance from the business broker's recommendations of 3rd party resources to support the buyer's needs.

Especially when there is a business broker, and inside SBA lender partnerships, it is common for these partners to work together behind the scenes by pushing to get the deal done for their interests and personal income gains.

-Deb

Deb Curtis is a seasoned business acquisition lending advisor specialist who brings a wealth of knowledge and experience to the change of business ownership financed transactions backed by the SBA table.

Her expertise in the Small Business Administration's (SBA) change of business ownership lending guidelines and her dedication to her client's success make her a valuable asset to anyone looking to purchase an established and profitable business.

She is committed to being a business buyer mentor and servant leader throughout the process, ensuring transparency and integrity. With her deep understanding of timing and reputable SBA change of ownership loan packaging, Deb Curtis can help make your business acquisition a smooth and successful process.

DM her today to set up a complimentary 30-minute business buyer SBA eligibility call.