Tell the Bank Everything (We Mean It!)

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“The government can’t loan you money if you already owe the government money,” said Doug Hubler, President of Apex, on a recent podcast episode. What Doug said is part of what we want to cover today, which is full disclosure to your lender in the process of buying a business.

The Bank Is Your Partner

You may be the brains and labor behind this upcoming deal, but the bank is putting up a large part of the money, and as such, they need to know as much about you as possible to justify the loan. You have to remove the idea that the bank “works for you” as you might rightfully consider them when you’re in a regular consumer banking relationship. You are working for each other in a business banking relationship. They give you money, and you ensure that they get that money back, along with some interest.

What to Disclose

As part of the lending process you will sign paperwork attesting to “telling the truth” and not “willfully hiding” any items which may be detrimental to your application. Things you must disclose include:

• Outstanding loans
• Outstanding liens
• Child support in arrears
• Being party to a lawsuit
• Declared bankruptcies (even if more than 7 or 10 years in the past)
• Credit charge-offs (even if more than 10 years in the past)
• DUI or other similar felonies

As part of their diligence process, the bank is going to find out about any of these if you didn’t disclose them. None of the items above would by themselves, if disclosed, be enough to stop a loan process. However, failure to disclose any of them may (and sometimes has) blown up a deal in progress.

All of the items listed above can be cured in some way before closing:

• Loans and liens can be paid back or accounted for as part of the transaction
• Child support can be brought current
• Terms of the deal can account for the outcome of a lawsuit in relation to the business, if needed
• Bankruptcies and credit charge-offs can be examined for their severity and distance in the past in relation to the present
• DUIs and other similar felonies can be contextualized by personal statements along with attestations of character and a period of time (for example, you are unlikely to be approved for a loan if the DUI has happened during the course of the deal).

In a pre-Internet world it might have been reasonable to think that “nobody would find out” about something. But it’s not reasonable to think that way now, and it’s an immature way to approach a business deal, which requires everything to be in the open so everyone can walk away as winners.

Remember, we all have some kind of skeletons in our closets. It’s not the skeletons that are problems, it’s the non-disclosure of said skeletons that is the problem. A big enough problem that it could kill your deal.

Wondering if you have an incurable skeleton in your personal or professional closet? Let’s talk about it.