Table of Contents

Why the Bank’s Due Diligence Shouldn’t Replace Yours

Apr 21, 2025

If you’re financing your deal with an SBA loan or working with a lender to close a business acquisition, chances are you’ve heard something along the lines of:

“The bank will do their own due diligence.”

That’s true. But it’s also incomplete.

Because here’s the catch: a bank’s due diligence isn’t designed to protect you. It’s designed to protect them.

And if you treat a lender’s diligence process as a substitute for your own, you may end up with a business that technically checks the boxes—but comes with risks and surprises you weren’t prepared for.

Let’s break down the key differences between bank and buyer diligence, and why both need to be handled—just not confused.


Bank Diligence Is About Risk to Repayment, Not Operational Risk

Banks aren’t trying to understand how a business runs day to day. They’re trying to understand one thing: Can this business service the debt we’re about to issue?

Their focus is narrow and cash-flow driven:

  • Historical and adjusted EBITDA
  • Revenue stability
  • Customer concentration
  • Working capital sufficiency
  • Collateral and asset coverage
  • Personal guarantees or guarantees from other assets

To be clear, this is necessary diligence. Banks need to protect their downside. But it’s not holistic.

A lender may be fine with a business that has outdated tech systems, shaky vendor relationships, or a founder who’s still making every major decision—so long as the debt coverage ratio pencils out.

As a buyer, that’s not enough.


What the Bank Won’t Dig Into (But You Should)

Here are just a few areas that often fall outside a lender’s due diligence scope—but can directly impact your success post-close:

Owner Dependency

Will the business fall apart when the seller leaves? The bank doesn’t care—unless that risk shows up in the numbers.

Culture and Key Employees

Are you inheriting a cohesive team or a fractured one? If three key staffers walk out the door during transition, the business could look very different in a hurry.

Systems and Infrastructure

Is the business running on modern systems that scale—or clunky spreadsheets that the seller built ten years ago?

Growth Constraints

Are there regulatory hurdles, market saturation, or sales bottlenecks that could cap your upside?

Operational “Workarounds”

Is the business functioning smoothly—or just propped up by the seller’s duct-tape solutions and heroic effort?

A bank doesn’t care if you’re buying a business that’s inefficient, stressful to run, or full of operational landmines—so long as it keeps paying the loan.

You, on the other hand, are the one who has to live with the outcome.


The Danger of False Confidence

Here’s where things get risky.

A lender signs off on the loan. The QoE report passed their review. Your financing is approved.

You assume: “Great! The bank did their checks. This must be a solid business.”

That’s exactly when buyers let their guard down. But the reality is: just because a business qualifies for financing doesn’t mean it’s a good buy.

In fact, we’ve seen plenty of buyers secure SBA financing for businesses that had major operational issues waiting just below the surface—issues that were outside the bank’s scope, but well within the buyer’s risk exposure.


What You Actually Need from Your Diligence

A good due diligence process should do two things:

  1. Satisfy the lender. (So your financing goes through.)
  2. Satisfy you. (So you know what you’re walking into.)

That second part is often where things fall short.

Before closing, make sure your diligence gives you clarity on:

  • Real, normalized EBITDA (not just seller add-backs)
  • Key risks to post-close operations
  • Hiring or infrastructure needs
  • Customer retention and market positioning
  • The transition plan and knowledge transfer from the seller

Your diligence should answer not just “Is this business profitable on paper?”—but also “Is this a business I want to own and operate?”


Final Thoughts: Two Lanes, One Deal

You don’t need to duplicate what the bank is doing—but you do need to supplement it.

Think of it as two parallel tracks:

  • The bank is protecting its investment.
  • You’re protecting your future.

Sometimes those interests overlap. Sometimes they don’t.

That’s why it’s critical to work with a diligence team that understands both audiences—so the final report supports your lender’s underwriting and your own peace of mind.

The bottom line? Getting a loan approved is a win. But getting a deal you can live with—and thrive in—is the real goal.


Need a diligence team that checks both boxes?

At Rapid Diligence, we help buyers go beyond lender requirements to truly understand the business behind the numbers. If you’re prepping for close or navigating an SBA deal, let’s talk.

Contact us today or book a free consultation and learn how we can be a trusted partner on your next deal!

Get invaluable insights and data we’ve collected after analyzing hundreds of deals:

About Author

Sam Ballard

Sam is a Client Success Manager at Rapid Diligence, advising clients through the initial stages as they transition into the due diligence phase of the deal. With a background in M&A advisory and deal execution, Sam has extensive experience in due diligence, deal structuring, and guiding acquisitions from start to finish.

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Posts

Aug 25, 2025
Owner-Dependent Revenue: Will It Survive After Close?
When you buy a small business, you are not just acquiring assets, employees, and systems. You are also buying the revenue streams that sustain the company. But in many acquisitions, a closer look reveals those streams are closely tied to one person: the current owner. This is what we call owner-d...
Aug 18, 2025
How to Use Contingencies Strategically in and LOI
In small business acquisitions, the Letter of Intent (LOI) sets the stage for everything that follows. While it is typically non-binding, it outlines the buyer’s intent, proposed terms, and conditions for moving forward. One of the most powerful tools within an LOI is the contingency clause. Cont...
Aug 11, 2025
Lessons Learned from Deals That Almost Fell Apart
In small business acquisitions, very few deals glide smoothly from LOI to closing. More often, unexpected challenges surface mid-process, creating moments where the deal feels uncertain. These situations can be stressful, but they’re also some of the best teachers. They reveal where risks truly l...

Free access to all the deal data we've collected:

After assessing countless deals, we’ve gained exclusive insight into what buyers are actually paying for businesses, not simply what sellers are asking.

Does longevity of a business affect its valuation more than growth? What’s the primary difference between an eCommerce business that sells at 3x vs. 7x EBIDTA?

We have the answers and the data to back it up. And we’re willing to share it. 😏