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Home > Tools and Resources > Buying a Business > Beware of the Lien Waiver

Beware of the Lien Waiver

By Roland Davis, M&AMI, CBI, SBA, CMEA | Sajomach Business Services, Inc., Chesapeake Virginia
Contact Roland Davis, M&AMI, CBI, SBA, CMEA | Visit Website | About The Author

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When you try to sell your small business, many hurdles can arise. In this example, everything hinged on a 50 word document. In the end, the sale of the business took 60 days longer and cost the buyer $1,500 because the large shopping center national landlord could not agree to allow the assets to be released to the bank if the buyer defaulted on the SBA loan.

Jim risked it all to achieve the American dream. He saved and borrowed from friends and family to start his small Italian Restaurant. He signed a lease in a large shopping center. His family worked there. He worked there 7 days a week. The going was rough, especially when Montgomery Wards and other anchors closed their doors.

A couple of years ago, the shopping center saw new blood. Value City Furniture and other major tenants started leasing space. A new landlord acquired the shopping center. Business picked up. Jim believed he was being called to serve his church as a youth minister. So, he decided to sell the business.

Over time, a buyer, who owned a small Italian restaurant in town appeared and wanted to purchase Jim's restaurant. A deal was struck, and an SBA 7A loan was secured for not only the entire purchase price, but it also included working capital. The buyer went through the entire rigorous SBA process. Success!! Jim could now pay back his father and start working with his church.

Everything was agreed to except for one document: one that is required for SBA loans by the banks called the Landlord Lien Waiver. The document provides the lender the right to remove or sell the assets of the restaurant in case of default on the SBA loan by the buyer. When asked initially after the listing about agreeing to a lien waiver the Landlord stated " No problem".

For two months the landlord and his attorney and the Bank and their attorney worked on trying to find the perfect language to agree to. A document that is standard for the majority of landlords and SBA loans was not reasonable for Jim's landlord and his small business assets. Without the document, the Bank would not loan the money to the buyer. The sale was delayed for weeks. As the broker, I kept calling the landlord everyday and asking what the progress was. He replied near the 50th day (after the Bank's commitment letter) "What's the urgency?"

Would Jim ever be able to find another buyer? Probably not. Definitely not a full paying SBA buyer. Also, any buyer who wanted to purchase the business would now also need to be informed that the assets that Jim paid and borrowed for were not being released by the landlord.

The attorneys finally found the perfect 50 words. The restaurant sale closed.

The lesson learned is when you list a business get the landlord to sign a lien waiver immediately.

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About The Author

Roland Davis is an M&AMI - Mergers and Acquisitions Master Intermediary - of the International Business Brokers Association. It is a distinction earned through extensive educational requirements, testing and verified performance. Mr. Davis is one of only 64 M&AMI's in the world. As an intermediary in 2006, Mr. Davis will be ranked in the top 15% of brokerage earnings in the United States.

Mr. Davis came to Hampton Roads in 1981 to work for the Virginian Pilot Newspapers. In 1983, he was promoted to the Landmark Communications corporate staff and started a computer division, Executive Productivity Systems, which grew from $0 to a $10 million dollar subsidiary. In 1990, Mr. Davis purchased the division from Landmark, migrated the company to be an international software company and retired in 2000.

He is an Eagle Scout, former President of the Greenbrier Baseball Association, Varsity Baseball Coach at Catholic High School, member of the Chesapeake Rotary and has been active in numerous volunteer organizations in the community.

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