Those of you who have read any of my posts over the last couple of years would no doubt have noticed me lament the exit of the Banks from the Business sales arena, once the recession hit.

The reason for their exit from the market were obvious, it was a Financial Institution led meltdown after all. Made things very difficult for anybody involved in business to gain finance for anything, let alone for a business purchase. To add to this we had the complete meltdown of the Finance company and/or mezzanine finance industry.

The banks went into safe mode, lending in general terms only to existing customers and if they looked at new business they were looking for 2 clear methods of exiting the loan. In simple terms the business and its assets and equal cover in personal property or something similar.

There also become a very clear emphasis on the purchaser, his/her history, his/her suitability for the business and benefits he/she could bring to the business going forward. The credit department of the Bank looking to lend on a particular transaction almost became like recruitment agents for that transaction.

This all was very problematic for purchasers who were used to being able to finance up to 100% of a transaction on a good solid business that had verifiable future earnings. Didn’t really matter if you had experience as long as you could pay back the money you were in.

Cash-flow lending was the trendy term that was trotted out in the early 2000s. This was where a Bank would lend on a transaction based on it’s past cash-flow and secured by GSA (General Security Agreement) on its future cash-flow. There was often no other security required by a purchaser for these loans and as you can imagine these were the first to go once we entered recession. A recession impacts all companies cash-flow because consumers and businesses stop spending so I would expect that these type of lends were the most at risk of failure over last couple of years.

Well great news the Banks are back in the lending game. We have even completed our first cash-flow lend transaction in almost 2 years. It was a significant business where the purchaser had $1m of equity in a $5.8m transaction. The Vendors left in about 10% but the Banks (there were 2 competing for the deal) made up the rest. The purchaser had no other security to offer the Banks and their security is a GSA on the business. We have another two underway where finance is approved where an offshore party has $3m of equity to put into an $8m transaction and another where a purchaser has $1m to put into a $4m transaction. On all of these deals there are at least 2 Banks competing for the deal.

There are two major shifts here. Firstly, the required loan to equity ratios, have softened dramatically. Last year a purchaser had to put in at least 50% to even be in the game and now, in the examples above we are as low as 80/20% loan to equity ratio. That is a dramatic change. And secondly the Banks (plural) are competing again. It was our experience that over the last year there was only one Bank that was consistently trying to grow their book and that was the B*Z.

This is obviously great news for us as brokers but is even better news for Business owners who might be looking to exit or purchasers looking to buy. I have often said that a business is only worth what a Bank is willing to finance. A little simplistic I agree but a very real phenomenon over the last couple of years. Hopefully this might motivate some business owners to investigate the possibility of exiting their business. The market seems to be turning and the Banks have re-entered the Lending game. Halleluiah!