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Approaching a Deal With Clarity: Pre-LOI diligence: done early, done right, done cheap.

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Wed, May 27, 2026 | 2pm Eastern time | 90 minutes, live Q&A

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How Much Can You Actually Pay Yourself?

Why more sellers are quietly rejecting SBA-financed offers.

A buyer I work with sent me a note recently that captures the new market in one paragraph.

He'd just submitted an LOI on a residential electrical services business at $4.6M already - already $300k above the asking price. Sharp operator, strong financing position, named SBA lender, prequalification letter on letterhead.

His offer came back as the lowest of eleven total offers. The top six bidders were in the $5.3M–$5.7M range.

This is the new baseline on any quality listing.

Sellers are getting offers from buyers with no SBA exposure and they have started preferring those offers, even at lower prices.

I've now had the same call a dozen times in the last six weeks.

A qualified buyer with a clean LOI loses to a cash bid at a smaller number. The buyer is doing everything right : qualified, sound deals, engaged lenders, clean structuring. And sellers keep walking. Not because the deal doesn't pencil. Not because the price is wrong.

Because the seller is afraid of the SBA.

The competitive math has changed:

• 12,856 deals were brought to market on the platforms I track in 2025 (a 17% jump year-over-year) and the number of new buy-side participants joining those platforms rose 36%.
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• Family offices closed 30% of platform deals in 2025, up from 16% the prior year.
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• PE plus independent sponsors fell from 61% in 2021 to 45% in 2025.
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• More than 90% of all buyer deal-intent is now concentrated in the $1M–$3M EBITDA range (the SBA sweet spot.)

Translated: every well-listed deal in our zone now gets eight to twelve offers instead of three to five, and several of those offers are coming from buyers who have committed family-office capital or self-funded equity rather than SBA financing.

For this issue I went back through our buyer-side closed-deal book over the trailing 17 months- every signed LOI on a PCA-financed acquisition that ultimately made it to a wire. I pulled the actual signed LOIs out of our files, parsed the structural mechanics out of each one, and compared 2025 patterns to 2026 patterns.

The patterns that separated the LOIs that survived all the way through to a wire from the ones that walked away or fell apart in diligence were clearer, and more quantifiable, than I expected.

Before we get to the patterns themselves, though, you need to see the shape of the market we're operating in. Because the seller dynamic doesn't make full sense until you also see the buyer dynamic, and the buyer dynamic is brutal.

For every buyer who has successfully tied up a deal under LOI right now, there are roughly eight to ten more actively shopping for one. That's the ratio sitting behind the eleven offers on the electrical services listing. It is the same ratio sitting behind every competitive process the seller's broker is now running.

And it is the reason the seller and their advisors are increasingly able to be picky - to weight closing certainty as heavily as price.

Sellers are Rejecting Uncertainty.

When a seller chooses a cash buyer at a lower number over your SBA-financed offer at full ask, here is what is actually going on in their head.

They've talked to their broker, their attorney, their wealth advisor, and their CPA. At least one of those four has told them, in plain language, that SBA deals fall apart, that they take six to nine months, that they get killed in underwriting, and that they'll waste six months only to end up back at square one with a tired business and a Q4 they can't recover from.

Whether or not that's true (and the data on our deals will tell us in a minute), it is what your seller is hearing. Your seller is not making a decision about you. They are making a decision about a transaction process they don't understand, fed by stories from people who have a financial incentive to close any deal as quickly as possible.

When two offers land on the same desk, one cash, one SBA, those advisors do not perform a probability-weighted expected-value calculation.

They tell the seller, in plain English, that the SBA deal is the riskier of the two, and they leave it at that.

The buyer who understands this, and who structures their LOI to actively defuse that uncertainty, wins deals other buyers thought they had locked. The buyer who doesn't, loses to lower cash bids and never quite figures out why.

Why This Is Hitting Harder Right Now

Four things changed in the back half of 2025 and the first months of 2026 that compounded into the wave of seller pushback we're seeing now.

The 2025 government shutdown left a scar. SBA loans sitting at the finish line in October and November got stuck for weeks. Sellers and brokers saw, in real time, how a deal could be ready to close and still get hung up by Washington. Processing has fully normalized, but the memory lingers, and every new SOP update reinforces it. I had three sellers in November ask me directly, "What if the government shuts down again?" The honest answer is that it can happen, and it's a reason for sellers to want the cleanest path to close.

Cash buyers are showing up with more capital. Searcher equity, family offices, and independent sponsors with committed capital have all made cash offers more common in deals that used to belong almost exclusively to SBA-financed buyers. A seller who used to see only SBA bids is now seeing two or three cash bids alongside yours, and the cash bids look easier even when they're lower.

Sellers are better educated than they used to be. Seller-side advisors, BizBuySell training, and a wave of M&A podcasts aimed at exiting founders have all given sellers a more sophisticated view of "deal certainty" as a value driver. They've been taught to weigh closing probability into their decision, and they've been taught that SBA deals have lower closing probability than cash deals. This is true on average across the whole market; it does not have to be true for your specific deal, but you have to prove that on the page.

New SOP changes have created sticker shock. Even the changes that benefit buyers have introduced uncertainty in the seller community. Sellers process change as risk. Their brokers process change as a sales objection. Both run from it.

A client said it to me last week, almost verbatim: his seller's broker told the seller, point-blank, that he should expect roughly half of SBA deals to fall through, and that he should price that risk into whatever he accepts. So my client's offer was being compared to a cash offer at roughly 85% of the same price, and the seller was treating them as equivalent.

That broker's number is wrong. The actual rate of deals dying after a signed LOI for our clients is in the low single digits when the structuring is done right. But the seller doesn't know that. And neither does the broker.

What the Seller Is Actually Afraid Of

In every "seller doesn't want SBA" conversation I've had this year, the fear breaks down into five very specific worries. Most buyers respond to these the wrong way, or don't address them at all. Take them one at a time. Each has a specific structural answer in your LOI.

1. "This is going to take 6 to 9 months".
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   ​A well-structured SBA acquisition with an experienced broker and a lender lined up before the LOI is signed closes meaningfully faster than the six-to-nine months sellers and their advisors fear. Deals that involve commercial real estate, environmental review, or unusually complex entity structure run longer than clean asset deals, but even those rarely approach the worst-case anchor the seller is carrying into the room. Across our closed-deal book, target close windows written into the LOI are typically materially shorter than the seller expects, and clean deals routinely hit those targets or close within a small number of weeks of them. Either way, the sellers and their advisors are anchored on a worst-case nine-month outcome that simply isn't the modal one.
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2. "The loan is going to get denied in underwriting."
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   ​A deal properly prequalified by a lender before LOI almost never gets denied. It gets restructured. But "restructured" sounds like "killed" to a seller who's already nervous, and most LOIs do not include the kind of evidence that would let the seller verify the deal has already cleared a first credit screen. Showing the seller - through your broker, through a transition memo, through whatever channel makes sense for the deal - that a real credit officer has already reviewed the structure is the cheapest way to defuse this fear.
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3. "The buyer is going to come back during diligence and renegotiate the price down."
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   ​This happens in some deals, but it's almost always preventable with proper financial diligence work before the LOI gets signed. Sellers, however, expect it. The way to disarm this fear is to telegraph in the LOI that you have already done the cheap, fast pre-LOI work, and to compress the post-LOI diligence window to a level that does not give a buyer enough time to invent reasons to retrade.
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4. "My financials, employees, and customers are going to be exposed to a bank that might leak this." ​
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   SBA lenders are highly disciplined about confidentiality, and the buyer's broker controls most of the lender exposure. But sellers picture a parade of strangers in their books. Buyers can defuse this by limiting the number of lenders touching the deal post-LOI to one or two, with NDAs in place, and by making the broker the single point of seller contact for everything financing-related.
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5. "If this falls through, I can't go back to my people and tell them I'm trying again."
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   ​This is the deepest fear, and the one buyers almost never address. Sellers have one shot at exiting cleanly, and they're terrified of burning it on a buyer who can't close. The structural answer is not in any single LOI clause: it is in the entire shape of the LOI, which should communicate at every line that the buyer has thought through what could go wrong and has built protection against it.

If your LOI doesn't proactively address those five worries on the first page, you are pricing yourself out of consideration before the seller even gets to the dollar amount.

From a credit officer's chair: working capital.

I asked an SBA business-development officer at a bank our team works with regularly to write out — at length, in their own words - how their credit team actually evaluates a buyer's working-capital language at the LOI stage. What came back was several pages of unguarded perspective, with the kind of specificity buyers almost never see directly. The relevant pieces, paraphrased and anonymized:

What underwriting actually wants in your LOI.

"From our credit perspective, the interpretation of working-capital true-ups really comes down to how clear and predictable the structure is. The easiest scenarios for us to underwrite are those where there is a clearly stated working-capital target: a defined dollar amount, particularly when it is supported by a Quality of Earnings report. In those cases we can confidently determine how much liquidity the business will have at closing."

"Middle-of-the-road scenarios, where working capital is 'normalized' and determined later during diligence, tend to create some uncertainty because the number can shift late in the process and affect the buyer's required equity. In those situations, we generally take a conservative view and may require an additional cushion."

"The most challenging structures are those with no working-capital peg at all, where the business is transferred 'as-is.' Even if the agreement does not address working capital, we still have to evaluate it. There is real risk that the seller could remove excess cash prior to closing, leaving the business undercapitalized."

"Ideally, we like to review working-capital language early in the process at the LOI stage. As part of our business-development and underwriting process, reviewing peg language is a key component of our initial analysis; however, if it is not addressed up front, it often gets flagged later during underwriting, which can slow things down. The earlier these items are clarified, the smoother the transaction tends to be."

• Working-capital target is defined or clearly measurable
• Components of working capital are spelled out (inclusions, exclusions, treatment of cash/debt/taxes)
• Target is based on historical trailing data or a QoE
• Cash impact at closing is understood by all parties
• Buyer is positioned to cover any post-close true-up if needed

Two things matter about that perspective. The first is that this is the credit officer's own language about what creates friction inside the bank, not a sales talking point and not something you'll find on any lender's website. The second is that the same five-item checklist that lets the bank size loans without conservative cushion is also the checklist that lets you write an LOI a seller will treat as serious. Defining the peg up front protects you on both fronts.

I'll come back to the working-capital deep dive in the failure-modes section below. For now, hold onto the picture of a credit officer reading your LOI and looking for those five items.

Anatomy of the median accepted LOI.

Here's what an accepted LOI in our pipeline actually looks like, drawn not from the LOIs that might close, but from the ones that actually did. I pressure-tested the structural mechanics of every PCA-financed acquisition closed over the trailing 17 months against the same set of dimensions. The result is a fairly clear portrait not just of what sellers say yes to, but of what the LOIs that hold together through underwriting and to a wire actually look like underneath.

Six numbers every first-time buyer should know cold

A few things jump out the moment you stack the closed LOIs side by side:

Seller notes are not optional. Three out of four accepted LOIs included one. The modal structure was a seller note worth roughly 10% of the purchase price, at 7% interest, on full standby for the entire term of the SBA loan. That's the SBA SOP shape that lets the note count toward the buyer's equity injection, since the SOP requires no payments of principal or interest for the life of the loan. Most seller notes clustered between 5% and 15% of price, at rates between 5% and 8%. Larger deals occasionally use multi-tranche notes (a standard seller note plus a performance-tied tranche, plus sometimes a long-standby balloon), and that structure is almost exclusively a $5M-plus phenomenon.

If your LOI doesn't have a seller note, you are not only structurally weaker than the typical accepted offer, you are also signaling to the seller that you don't expect them to participate in the transition. That signal does not land well in 2026. The seller note has quietly become the dominant proof that the buyer believes in the business.

Earnest money is rare, which makes it powerful when you use it. Only 22% of accepted LOIs had any earnest money, and in roughly 80% of those cases the deposit was refundable through the diligence period. When earnest money does appear, the median deposit is $25,000 and it typically lands at around 1% of price (0.5–2% range). A handful of sub-$1M deals pushed the percentage as high as 3–4%; on $5M-plus deals it tends to fall to 0.5% or below in absolute terms. The buyer who shows up with a modest deposit that goes non-refundable after a short window is in a category of about one in four LOIs the seller is seeing.

Sellers expect financing contingencies to ride the whole deal. 88% of LOIs kept the financing contingency as a closing condition all the way to funding. Buyers who negotiate a partial mid-LOI drop — for example, the contingency falling away after lender credit committee approval — are doing something only a handful in our data did. It is rare and hard, but on the right deal it is the single most powerful seller-comfort move you can make.

Named lenders almost never appear in the LOI itself. Only about 14% named a specific SBA lender in the body. Most said "Buyer's SBA financing" or "SBA 7(a) lender" generically. The right balance is deal-specific — some buyers want the optionality of switching lenders during underwriting and intentionally keep the LOI generic; others gain real credibility by being concrete about who is reviewing the deal. What matters more than the LOI language is whether a credit officer has actually engaged with the deal before the LOI is signed.

Exclusivity windows are longer than buyers realize, and they auto-renew. Median no-shop was 60 days, with 90 days nearly as common. The important detail: 62% of LOIs auto-renewed in 30-day increments unless either party gave written notice. That mechanic is mostly the seller's leverage. It locks them out of the market for longer than they realize when they sign, and most sellers do not push back on it if the buyer proposes it.

Working capital pegs are everywhere. 71% of LOIs addressed working capital, almost always tied to a trailing 12-month average. The remaining 29% punted to "TBD during diligence," which almost always becomes a post-LOI fight.

Non-competes are universal, and almost always five years. Every single LOI in the closed-deal book included a non-compete; the median and modal term was 5 years; geographic scope ranged from a 50-mile radius to "current operating states." The market has settled on a default and sellers expect it.

Six headline figures don't fully capture what an accepted LOI looks like. Stack the same closed-deal book side by side a second time and another half-dozen patterns surface with similar regularity; patterns that shape how a seller reads the rest of your offer.

The deal-size distribution sits squarely in the SBA sweet spot. Across the closed-deal book the median SBA loan amount lands in the low-to-mid seven figures, with a range running from a small minority of sub-$1M deals up to the SBA 7(a) statutory cap of $5M. With typical SBA structuring (10–15% buyer equity injection plus a 5–15% seller note), the median purchase price implied by that loan distribution lands roughly in the $2M–$2.5M zone. That isn't a random distribution — it reflects the bands where SBA acquisition financing is structurally most efficient. Below ~$750K the fixed costs of running a 7(a) start to eat into deal economics; at the upper end, buyers either tap the 504 program in parallel or shift to conventional senior debt and independent-sponsor equity that competes well with SBA on terms. The implication: if your target's loan need lands between $1M and $4M, the patterns above are almost certainly the patterns your LOI should mirror.

Non-compete, seller transition, and post-close consulting work together as a continuity package. Every LOI included a non-compete; 92% included a defined seller transition period (median 90 days, range 30–180); 42% included a formal post-close consulting or employment agreement for the seller. Read in isolation these are three separate clauses.

Read together they describe a buyer who has thought carefully about what business continuity actually looks like - and a seller who is being asked to stay engaged rather than handed a one-day exit.

The 42% with a formal post-close consulting or employment agreement carries real SBA structuring weight too: a properly sized and timed consulting payment can preserve seller economics without violating SBA's restrictions on seller compensation post-close, but the dollar amount and the term length both have to be set carefully. The buyers who lose deals to cash bidders are often the ones whose LOI implies the seller will be unwelcome on the premises the day after close.

QoE references in the LOI and RE-inclusion are diligence-signaling levers. 38% of accepted LOIs name a specific third-party quality-of-earnings provider in the body of the document - typically a single line that says "buyer will engage [firm] to conduct a quality-of-earnings review."

It is one of the cheapest seller-comfort moves available, because it telegraphs that the buyer has already done - or has already lined up - the diligence work that sellers most fear will become a retrade lever. Separately, 28% of accepted LOIs include commercial real estate alongside the operating business.

These deals are almost always financed as a 7(a) + 504 stack, and they run materially longer to close than asset-only deals. Buyers acquiring real estate should price the longer window into the LOI rather than treating it as a surprise extension shortly before the original target close. Both patterns reward forethought - and both are visible to the seller from page one of the LOI.

What changed between 2025 and 2026.

Looking at how LOIs were structured in 2025 versus how they're being structured in 2026 YTD, four shifts are worth your attention. Each is a directional move in seller-favored terms - small individually, meaningful in aggregate.

Seller-note prevalence is rising. 68% of accepted 2025 LOIs included a seller note; 83% of accepted 2026 YTD LOIs do. Sellers are increasingly accepting that some level of participation in the transition is the price of getting the deal done. Proposing a seller note is now both less awkward and more expected than it was 12 months ago.

Auto-renewing exclusivity is becoming the default. In 2025 just over half of LOIs had auto-renewing language; in 2026 YTD it's 76%. The market is normalizing around 30-day rolling extensions absent written notice. Buyers without that language are increasingly an outlier — and sellers signing those LOIs are giving away time without getting anything for it.

All-cash deals are losing share. 22% of accepted 2025 LOIs were structured as fully cash at close (no seller note, no seller paper); only 12% of 2026 YTD LOIs are. This reflects sellers' growing comfort with leaving 10–20% of price on the table as a seller note in exchange for a cleaner close.

Buyer counsel is being named more often. LOIs naming a specific buyer-side law firm went from 18% in 2025 to 32% in 2026 YTD. Naming your counsel in the LOI is a small but real signal that you've assembled a real team.

Taken together, these shifts describe a buyer-side market that is gradually professionalizing - and a seller community that is increasingly able to tell the difference between a well-built offer and a poorly-built one.

Six moves to win the deal anyway.

Here are the six levers we coach every client to pull when they're up against a seller who is skeptical of SBA financing. Each is anchored in what the closed-deal book either reliably did, or, more interestingly, what only a small minority did, which is precisely why those buyers stood out.

1. Lead with a written buyer narrative, not just a financial structure.​
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   Most LOIs read like financial structures. The ones sellers actually remember read like proposals for the company they spent years building. A short buyer narrative attached to your LOI: who you are, why you've chosen this business specifically, what you intend to do operationally in your first year, and what your transition plan with the seller looks like, does two things no financial structure on its own can do. It addresses the legacy concern that sits underneath every seller's stated worries (will my employees, customers, and what I built survive this?), and it positions you as a successor rather than as an acquirer.
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2. Compress your closing timeline with a credible structure.
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   ​Show the seller a target close window that's materially tighter than the worst-case nine-month outcome they're afraid of, and back it up with named third-party diligence providers (quality of earnings, legal, environmental if applicable) so they can see the path is real.
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3. Put real money at risk after a short window.
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   ​Only 22% of accepted LOIs included earnest money. When earnest money does appear, the median deposit is $25,000 (typically 0.5–2% of price, most landing at around 1%). The buyer who shows up with $10K–$25K (sized to roughly 1% of price for most deals) that goes non-refundable after a short upfront window, even with the financing contingency still in place, is in the top quartile of LOIs sellers see
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4. Treat the seller note as a confidence signal, not just structuring.
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   ​Around 75% of accepted LOIs included a seller note, and the trend is upward, with 2026 YTD at 83%. The modal shape is well established: roughly 10% of price, 6 to 7% interest, on full standby for the life of the SBA loan, which is what lets the note count toward the SBA equity injection.
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   An LOI without a seller note isn't just structurally weaker than the typical accepted offer; it signals to the seller that you don't expect them to participate in the transition
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5. Get your broker into the seller-side conversation early.
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   ​If you have an SBA broker, get them on a call with the seller's M&A advisor shortly after the LOI is signed - ideally before the seller's nerves have had a chance to harden. Experienced professionals talking shop demystifies the process more than any explanation from a first-time buyer ever could.
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6. Price your SBA bid above the implied cash-equivalent.
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   ​If a cash buyer is at $1.6M and your SBA offer is $1.6M, you are being treated as the worse offer even at the same price. Price yours at a level that closes the seller's mental risk gap, and you've reframed the comparison.

Thanks for reading!

If you're working on an acquisition, or are in the pre-LOI phases, you can book a short, informal call here to meet our team and learn how we can help you.

For pre-LOI buyers ready to explore opportunities: Schedule a meet & greet call​

Already have a deal under LOI and need financing help: Schedule an LOI consultation​

Until next time,

Matthias Smith

President, Pioneer Capital Advisory

​www.pioneercapitaladvisory.com​
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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.

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