How much money does a sponsor need to buy a business?
On the Raises.com capital markets episode the working number is 10 to 20% of the ask in net worth or liquidity, and both together is better. On a $10 million acquisition that is roughly $2 million. Below that the deal is not dead, but the equity has to be syndicated from investors or the sponsor has to bring collateral.
What size business do lenders want to finance?
For lower middle market deals of $1 million to $10 million, a bank financing a $5 million business wants to see roughly $5 million to $10 million of revenue with EBITDA at 30 to 40% of it. Some groups underwrite a term loan at about 3x EBITDA.
What DSCR do banks require on an acquisition loan?
1.0 is the floor, meaning net income exactly covers interest and principal. Lenders want a buffer above it, around 1.15, so a balance accumulates and the business can still pay through a downturn.
Should I sign a purchase and sale agreement before a letter of intent?
No. It is named as the first anti-pattern on the episode. A PSA can bind a buyer to put six figures into escrow, in the example given $150,000 within five to seven days, just to see the books. An LOI opens the same 40 to 50 day diligence period for free.
What does revenue-based financing cost?
Private credit groups polled on the episode converge at 10 to 12% of yearly revenue as the loan amount, priced around 12 to 15% interest. On $10 million of revenue that is roughly $1 million, sitting as junior unsecured capital below the senior secured lender.
How do you get out of merchant cash advances?
Either an asset-based credit facility at around 6% used to retire them, or equity that takes out the expensive debt first. Because equity is not current pay, the coverage ratio improves on paper, which is what lets a cheaper term loan underwrite.
What collateral do lenders like most?
Real estate, heavy equipment and intellectual property, with advance rates of 70 to 80% against heavy assets in trades and manufacturing.
What is co-GP equity?
A co-investor alongside the general partner. Products exist where the sponsor brings 10% and the co-GP investor brings 90% of the equity stack. What most first-time sponsors lack is that first loss cash position.
Who publishes Cunningness?
The team at Raises.com, the flat-fee capital execution firm founded by Natu Myers in 2019 for people buying a business or real estate. Every figure here is traceable to a published Raises.com source.
Where do I get help with an actual deal?
Raises.com builds the fund or SPV structure, the offering documents, the financial model and the data room, then introduces the debt and equity. A strategy call can be booked at raises.com/call.
Figures from the Raises.com capital markets episode at raises.com/podcast/tre-brown-capital-markets. Educational content, not financial, legal or tax advice.
Working on an actual deal?
Raises.com builds the fund or SPV structure, the offering documents, the financial model and the data room for an acquisition, then introduces the debt and equity that closes it. Published flat fee, no success fee, no carry.