Your First Steps in the Self-Funded Search Process

If you’ve decided to embark on a self-funded search to acquire a business, you’ve taken an exciting step towards owning a business (and your future). But diving into the process without a structured approach can lead to frustration, wasted time, or even deals falling apart due to lack of preparation.

At Pioneer Capital Advisory LLC, we work with business buyers every day to help them navigate SBA financing, structure their deals, and ensure they have a clear path forward. The most successful buyers take specific preliminary steps before engaging in serious deal negotiations.

Here’s what you need to do to position yourself for success:

1) Decide How You Will Fund Your Search & Acquisition

Before you begin actively looking for a business to acquire, you need to determine how you plan to finance both your search and the actual purchase of the business.

There are three main funding strategies:

1. Personal Cash Only: If you are self-funding both your search and acquisition, you have full control over decision-making, but you are also fully responsible for the financial commitment.
2. Personal Cash + Investor Cash: Many searchers use a combination of their own funds and capital from investors. This allows for a larger acquisition but also introduces the risk that your investors may not like a particular deal, which could leave you scrambling for funding.
3. Fully Investor-Financed: Some buyers choose to structure their deal entirely with investor capital. While this eliminates your personal financial risk, it means your investors ultimately have the final say on whether a deal moves forward.

Why This Matters: The amount of personal capital you bring to the table, and the extent to which you rely on investors, determines the size and type of business you can realistically acquire. It also impacts your ability to secure financing, structure your deal, and ultimately close on an acquisition.

2) Assess Your Maximum Purchase Price

Before you start evaluating businesses, you need to establish the maximum purchase price you can afford based on:

• Personal Cash & Liquid Investments: How much cash and taxable stocks do you have available for a down payment?
• Potential Investor Capital: If raising outside equity, what is a realistic amount you can secure?
• SBA 7(a) Loan Eligibility: How much leverage can you use, based on your net worth, liquidity, and experience?

A general rule of thumb is that SBA 7(a) loans require a minimum of 10% down (though many banks prefer 15%+ in today’s market).

If you’re buying a $2M business, you should be prepared to contribute at least $200K–$300K in cash or investor equity.

At Pioneer Capital Advisory LLC, we help searchers determine their maximum buying power by reviewing liquidity, experience, and potential lending options.

3) Secure a Home Equity Line of Credit (HELOC) – If Applicable

If you own a home with 25%+ equity, one financing tool you should consider is a Home Equity Line of Credit (HELOC).

Why This Matters for SBA Loans

• The SBA requires banks to take liens on personal real estate with 25%+ equity, based on fair market value.
• If you have less than 25% equity, the decision to place a lien is at the bank’s discretion.
• Optics Matter: If you obtain a HELOC right before your deal closes, it can appear that you’re trying to avoid a home lien, which could raise red flags with the lender.

Key Tip: It’s best to set up your HELOC before you have a deal under LOI, so it looks like a standard liquidity tool rather than a last-minute workaround.

4) Speak with SBA Lenders or an Advisory Firm

Your ability to obtain SBA financing is dependent on:

• Your personal liquidity and whether you meet the 10%–15% minimum equity injection requirement.
• Your credit score (generally 680+ is required, but higher scores improve your options).
• Your industry experience and ability to demonstrate competency in running the business you’re acquiring.
• The financial strength of the business itself (cash flow, debt service coverage ratio, etc.).

5) Find a Business to Acquire – On-Market vs. Proprietary Search

Once your financing strategy is in place, it’s time to start looking for deals. There are two primary ways to source acquisition opportunities:

On-Market Deals (Listed by Brokers)

• Pros: Easier access to deal flow, ability to review professional CIMs, and a more structured process.
• Cons: Higher competition, inflated pricing, and often stricter requirements from the seller.

Proprietary Search (Direct Outreach to Sellers)

• Pros: Potentially better deal terms, less competition, and direct access to business owners.
• Cons: Requires more effort, time, and persistence to find sellers who are willing to transact.

Most searchers use a combination of both methods, depending on their time commitment, capital constraints, and industry preferences.

Take Action: Set Yourself Up for a Successful Search

Starting a self-funded search without a structured plan can waste months of time and lead to missed opportunities. The most successful buyers take proactive steps to secure financing, assess their acquisition budget, and build the right network.

If you’re serious about buying a business in the next 6–12 months, your next step is to get clarity on your funding strategy and financing options.

📅 Schedule a call with me today to discuss your search strategy and SBA 7(a) financing.

Let’s make sure you’re set up for success before you sign an LOI.

Take care,

Matthias

🌐 Visit us at pioneercapitaladvisory.com​

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.