Glossary
Goodwill
The part of a purchase price above the identifiable assets: what you pay for the name, the customers and the earning power itself.
In plain English
When a business sells for more than the total of its identifiable assets, the difference is goodwill. It is the price of everything that makes the business earn: the reputation, the customer base, the location, the systems, the fact that the phone already rings.
Goodwill is real, but it is only worth what the earnings behind it are worth. Goodwill priced on inflated add-backs is the most expensive mistake in business buying, because you pay cash today for earning power that was never there.
Why a lender cares
Goodwill is hard for lenders because it cannot be repossessed. The more of the price that is goodwill, the more the facility depends on earnings alone, and the harder the credit team tests those earnings. Strong evidence of sustainable earnings is what gets goodwill-heavy deals funded; we have seen businesses that are mostly goodwill funded at 100% when the earnings case held up.
Where this term takes you
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