Three anti-patterns, in the order they cost money
1. Signing a purchase and sale agreement instead of a letter of intent
This is the first anti-pattern named on the capital markets episode, and it is the most expensive. A purchase and sale agreement is the binding contract. Signing one to get access to the books can commit a buyer to six figures in escrow before they have seen anything: the example given is $150,000 within five to seven days.
A letter of intent opens the same diligence window, described as 40 to 50 days, without the money. The LOI exists precisely so a buyer can see what they are getting before they are bound to buy it. Sellers who insist on a PSA first are asking the buyer to pay for the privilege of due diligence.
2. Buying something you have never operated
The second anti-pattern is scale rather than paperwork: taking on a target too large or too unfamiliar to run. Lenders read this the same way, because the risk they are underwriting is not only the business, it is the person about to operate it. A buyer with no experience in the sector can still finance a deal, but the stack has to carry an operator whose record the lender will accept.
3. Letting expensive debt accumulate
Merchant cash advances appear at 30% and sometimes 50%. Debt at those rates consumes the cash that would otherwise service a cheaper loan, which is why coverage ratios collapse and refinancing gets harder the longer it sits. The route out is either an asset-based facility, around 6% in the example described, used to retire the advances, or equity that takes out the expensive debt first. Because equity is not current pay, coverage improves on paper, and that is often what lets a cheaper term loan underwrite at all.
The quieter one: unclear books
A buyer or a target whose accounting cannot be read is usually described as having an accounting problem rather than a money problem. It is worth naming here because it is the cheapest of all of these to fix and the most common reason a financeable deal reads as unfinanceable on first submission.
Anti-patterns and figures from the Raises.com capital markets episode, published with chapters and a transcript at raises.com/podcast/tre-brown-capital-markets. Nothing here is legal advice; have counsel review any letter of intent or purchase agreement.
Next: how seller notes and rollover equity close the gap, and the bars a deal has to clear. Raises.com carries transactions from structure to close at raises.com/buy-a-business.