Tuesday, June 16, 2009

Where are the Banks on Business Acquisition Deals

We have been working on a business acquisition financing deal with a local community bank in Illinois since March 2009. As of yesterday, the bank provided the following update –“it’s still on the table as a viable transaction”. This is a community bank where the loan committee is made up of the board of directors – seemingly a group of people who should be able to make a decision. Frustration does not even begin to explain how the buyer, seller, loan brokers and advisors feel about this situation.

When did ‘LIMBO’ become an acceptable response? It’s as if the bank is sitting on the fence waiting for some divine message – is this how our financial institutions are making decisions? We have received no questions or requests for additional information - just a cryptic message that this is a viable transaction.

The total loan request for this deal is under $200,000 – we are not talking about a multi-million dollar deal. The bank has stated they like the business, they really like the buyer and they believe this is a good fit. The buyer has a solid credit background and can easily fund the down payment. In addition, the seller has agreed to carry back a portion of the deal. All the elements that make for a good deal are present and accounted for – except for a motivated lender.

This deal should have been approved or denied within 30 days of receiving all documentation which was on April 10, 2009. We are now at June 16th and the deal is in purgatory. While I am singling out this community bank, in reality all of our deals are suffering a similar fate.

Without the ability to transfer wealth and business ownership there is a high likelihood that businesses will fold, jobs will be lost, tax revenues will shrink and the economy will continue to languish. The Obama administration and the Fed must devise a strategy to get banks back to the business of lending. Until this occurs any discussion of a recovery is just wishful thinking.

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