What change-of-control consents do lenders check when you buy a business?

Why consents are the lender's problem too

A lender financing an acquisition sizes the loan on the business's earnings. If a customer that supplies a large share of those earnings has a contract that lets it walk away when the business is sold, the earnings are conditional, and so is the lender's repayment. The same is true of a franchise agreement that needs the franchisor's approval of a new owner, a distribution agreement that gives the business its product line, or a license without which it cannot legally operate.

So lenders read the key contracts in diligence and write the material consents into the loan approval as conditions precedent: the loan does not fund until the consents are signed. That makes consents a financing issue as much as a legal one. A buyer can have an approved loan and a signed purchase agreement and still not close, because one customer's procurement department has not returned a form.

This matters most where revenue is concentrated. If the largest customer accounts for a large share of revenue, the lender cares a great deal about that customer's contract and very little about a routine supply agreement that could be replaced in a week. The lender's view of concentration generally is in customer concentration in an acquisition.

Two different clauses, and why the deal structure matters

Contracts restrict a sale in two ways. An anti-assignment clause says the contract cannot be transferred to another party without consent. A change-of-control clause says that a change in who owns or controls the contracting company counts as an assignment, or gives the other side the right to terminate. The first matters in an asset purchase, the second in a stock purchase, and many contracts contain both.

In an asset purchase, the buyer's new company takes over the contracts, so each one must be assigned. In a stock purchase the company that signed the contracts is the same company after closing, so there is no assignment, but change-of-control clauses and regulatory rules still apply. Buyers sometimes choose a stock purchase to reduce the consent list, and it often does, but the tax, liability and financing consequences of that choice are larger than the consent question. They are compared in asset versus stock purchase financing.

Which consents a lender treats as material

A lender does not need a signed consent from every counterparty. It needs the ones where losing the counterparty would change the credit. In practice, lenders look at four kinds:

• Revenue that could leave. Contracts with customers large enough that their departure would take the business below the coverage the lender needs.
• The reason the business exists. A franchise, a dealer or distribution agreement, or an exclusive territory, where the business without it is a different business.
• The right to operate. Licenses and permits that are legally required: a liquor license, pharmacy licenses and registrations, healthcare enrollments, contractor licenses. In an asset purchase many of these are applied for again by the buyer, and the application has to be approved, or a transition arrangement in place, before the lender funds.
• The location. The lease, where the business depends on its address. That case is covered in why the landlord lease matters when you finance a business purchase.

Lenders also read what the contract actually protects. A customer contract that either side can terminate on short notice for any reason gives little protection whether or not consent is obtained, and the lender will look instead at the history of the relationship and what the seller's transition plan does to keep it. In an SBA complete change of ownership the seller may consult for up to 12 months after closing (up to 24 months under SOP 50 10 8.1 from 1 October 2026), which is often the practical tool for carrying a relationship across, more than any signed form.

Lenders make the key consents conditions of closing. A consent that nobody asked for until the loan was approved is a delayed closing, and sometimes a lost deal.

Mapping consents from the data room

The work is a schedule, built as soon as the buyer has access to the seller's contracts. Ask in the first diligence request for every contract with the largest customers and suppliers, every franchise, dealer and license agreement, the lease, and a list of every license, permit and registration the business holds. The buyer's lawyer reads each for assignment and change-of-control language; the buyer adds what each is worth to the business.

Share the schedule with the lender early. A lender that sees the consents mapped, weighted and in progress reads the file as a buyer in control of the deal. A lender that finds an exclusive distribution agreement with a change-of-control termination right in its own diligence reads it the other way.

Getting the seller to do the asking

The seller owns the relationships and controls confidentiality. Customers and suppliers who hear about a sale from a stranger react worse than those who hear it from the owner with a plan. A buyer should not approach counterparties directly before the seller agrees how and when the sale will be announced.

• Put it in the purchase agreement. A covenant that the seller will seek the listed consents, and a closing condition that mirrors the lender's, so the seller's obligation and the lender's requirement match.
• Sequence by lead time and sensitivity. Regulatory applications and franchisor approvals have processes of their own and start first. Key customers are usually approached once the purchase agreement is signed and there is a communication plan.
• Use a consent form the lender has seen. Lenders sometimes want the consent to confirm there is no existing default, or to permit a collateral assignment of the contract to the lender. Getting that language in the first request avoids asking the same customer twice.
• Mind the seller's own loans. The seller's existing loans almost always have a change-of-control default, so they are paid off at closing, as covered in paying off seller debt at closing. The buyer's new loan will carry its own, described in change of control as a loan default.

When a consent is late or refused

Not every consent arrives by the closing date. What happens next is a matter of the lender's judgement, and it depends on how much the missing consent matters.

• A consent that is late but not in doubt. Some lenders will close with it as a post-closing requirement, if the counterparty has confirmed in writing that it is processing the request. Others will not. It depends on the weight of the contract.
• A holdback. Part of the price is held back, or placed in escrow, and released to the seller when the consent arrives. See escrow and holdbacks in acquisition financing.
• A resized loan. If a key customer refuses, the lender underwrites the business without that customer. The loan shrinks, and the price usually has to follow.
• An earnout, on conventional deals only. Tying part of the price to whether a customer stays can bridge the gap on a conventional loan, but SBA prohibits an earnout to the seller in a change of ownership it finances. See earnouts and acquisition debt.

When Transparent prepares an acquisition file, the underwriting memo lists the material consents and where each stands, beside the customer concentration it relates to, so lenders price the deal with the issue in view rather than discovering it in closing diligence. The package, including the financing model, lender presentation, blind teaser and memo, is built in a day once the documents are in. The rest of the file lenders expect is in what lenders need to finance an acquisition.