How do you line up investors before you have a deal?

Why raise before you have a deal?

Three reasons.

• Time. Once you sign a letter of intent, diligence typically takes 30 to 60 days and the whole SBA process 60 to 120 days. Raising money from strangers in that window adds a second deadline to the first.
• Negotiating position. A seller and broker can tell the difference between a buyer who can close and one who hopes to. Committed equity makes your offer more credible.
• SBA timing. Injection funds generally need to be in the account about 30 days, or have a documented source. Money that arrives at the last minute creates questions you do not want during underwriting.

Raising first does not mean taking money first. It means investors have agreed in principle, know the terms, and are ready to sign when you have a deal that fits.

What do investors want to see before there is a deal?

Without a company to analyze, investors are judging you and your plan. Prepare:

1. Your background. Why you can run a business of this size, stated plainly.
2. Your buy box. Industries, size, geography and the tests a deal must pass. See how to set acquisition criteria.
3. A sample capital stack. Sources and uses for a typical deal in your range, showing your cash, the SBA loan, any seller note and their equity.
4. Lender feedback. A conversation with one or two SBA lenders about what they would finance for you.
5. Proposed terms. What investors get, written down.
6. Your own money. How much you are putting in. Investors want you to have something real at risk.
7. Reporting. What you will send them and how often.

What terms should you offer?

For a self-funded search deal, investor terms commonly include:

• A 2x step-up on their equity, down from about 3x in earlier years.
• An 8% to 12% preferred return.
• A 1.0x liquidation preference.

Investors in these deals target 30% to 40% IRRs, and the searcher commonly keeps roughly 60% to 80% of the equity. Our articles on standard investor terms and how a step-up works show the math.

Decide early whether investors are backing one deal or a holding company that will make several. Deal-by-deal vehicles are simpler to start. A holding company lets the same investors fund the second and third acquisition without starting over. See fund, holding company or deal-by-deal SPVs.

How do SBA rules shape who can invest?

If the deal uses an SBA 7(a) loan, investor money has to fit the rules in SOP 50 10 8.1:

• Limited sources cap. Passive minority investors holding under 20% in aggregate with no control, together with any seller note on full standby and other standby debt, can supply no more than half of the required injection.
• Distributions. If minority-investor equity counts toward the injection, those investors generally get only tax distributions until the SBA loan is repaid. Tell them before they commit.
• Guarantees. Any owner of 20% or more must personally guarantee the loan. Most passive investors will not, so keep them below 20%.
• Citizenship. Effective March 1, 2026, SBA loans are available only to businesses owned by U.S. citizens or U.S. nationals with a U.S. principal residence. Check every investor who will hold equity.

Worked example: how much can investors supply?

1. Total project cost: $2,500,000. Minimum injection at 10%: $250,000.
2. Limited sources cap: half of $250,000, or $125,000.
3. The seller agrees to a $50,000 note on full standby. That uses $50,000 of the cap.
4. Passive investors under 20% can supply up to $75,000 toward the required injection.
5. The remaining $125,000 must come from you or from owners of 20% or more who guarantee the loan.

If you have $60,000 of your own, this structure does not work, however many passive investors you line up. Find that out before you search, not after you sign a letter of intent.

How do you turn interest into commitments?

Move investors through stages and keep a written record:

1. Interest. They have heard your plan and want to see deals.
2. Agreement in principle. They accept your terms and a target amount.
3. Signed commitment. When a letter of intent is signed, they sign subscription documents for that deal or vehicle.
4. Funded. Money arrives early enough to meet the lender's seasoning or documentation requirements.

Raising money is a securities offering, even from friends. Work with securities counsel on the exemption you rely on, what you may say in public, and investor qualification. Our Raise engagement prepares founders for that process; we do not introduce or solicit investors.

Where these numbers come from: SBA injection, limited-source, distribution, guarantee and seasoning rules are from SOP 50 10 8.1, summarized by Beancount and Starfield & Smith. The citizenship rule is from Cantrell Law Firm. Investor terms are from Smash and Searchfunder. Timelines are from BizBuySell and BigIdeasDB. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

Should I take investor money before I find a deal?

Usually not for a single deal. Commitments in principle are enough, with funding when a letter of intent is signed. A holding company raising to make several acquisitions is different, and may raise and hold capital in advance.

How many investors should I talk to?

Enough to cover the equity your target deal needs with a margin, since some will drop out when they see the actual deal. Track each one's amount and stage.

What if an investor wants 20% or more?

Under SBA rules they must personally guarantee the loan. Most passive investors decline. Split the amount across more investors or use a non-SBA structure.

What comes next

If you plan to buy more than one business, you are raising for a holding company, not a single deal. Read how to raise capital for a holding company before the first acquisition next.

Related articles

• Should you buy a business with a partner?
• Who should be on your deal team, and when do you hire them?
• Can investors fund my down payment, and what do I give up?
• When should you raise capital: before or after you find a deal?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.