When should you raise capital: before or after you find a deal?

Why does raising after the LOI go wrong?

Because two clocks start at once. The seller's clock is the exclusivity period. The lender's clock is the SBA process. Your raise has to finish inside both.

• Exclusivity is short. LOI exclusivity typically runs 30–90 days. If it lapses, the seller can talk to other buyers.
• Diligence competes for your time. Due diligence typically takes 30–60 days. That is the same period in which you would be pitching investors.
• Cash must be seasoned. As of October 2026, SBA injection funds must be in the account about 30 days or documented as to source. Late money adds paperwork at the worst moment.
• Investors know you need them. A buyer with a signed LOI and no equity negotiates from weakness. Terms get worse.
• The lender will ask. A lender wants to see where the equity is coming from before it commits.

My view, stated on this site, is simple. Raise capital before you find the first deal, because raising after an LOI puts you under time pressure.

What does "raised" mean before there is a deal?

There are three levels of readiness. Each gives you more certainty and costs more to hold.

1. Funded. Investors have wired money into the holding company. This is the most certain, and the cash is already seasoned. The cost is idle capital and investor impatience.
2. Committed. Investors have signed subscription agreements to fund when you call the capital for a deal. This is close to certain if the documents are tight. It costs little until called.
3. Soft-circled. Investors have said they are interested. This is the least certain. Expect some to fall away when a real deal arrives.

Committed capital is often the practical middle. Write the call mechanics carefully: notice period, what happens if an investor does not fund, and how the call fits the 30-day seasoning rule. Draft these documents with securities counsel.

Worked example: the timeline and the cost of raising early

The timing problem, using the shortest typical ranges:

1. Day 0: sign the LOI with 30 days of exclusivity.
2. Day 0 to 30: diligence runs, which typically takes 30–60 days.
3. Injection funds need about 30 days in the account or a documented source. Money that arrives on day 25 is not seasoned by day 30.
4. Result: with 30 days of exclusivity, there is no room to start a raise after signing.

The cost of raising early is real too. Self-funded search investors commonly ask for an 8–12% preferred return. Suppose it accrues from the day money is funded:

1. Capital raised: $500,000 at a 10% preferred return.
2. Accrual per year: $500,000 x 10% = $50,000.
3. Traditional search funds typically take about 20 months to acquire, per the Stanford 2026 study. If your money sits that long: $50,000 x 20 / 12 = about $83,000 of accrued preference before the first deal earns anything.

There are three fixes. Use committed capital that is called at the deal. Start the preference at deployment rather than funding. Or fund in tranches tied to milestones. Each is a negotiated term.

If you are a first-time buyer

As of October 2026, an SBA Initial Acquisition needs at least 10% of total project costs as equity injection, and the lender cannot reduce it. On a $2.5M project that is $250,000. Have that amount funded or committed before you make offers. Sellers and brokers take a buyer with proof of funds more seriously.

Passive minority investors, together with any standby seller note, can supply no more than half of the injection. So line up your own portion early too.

If you already own a business

Your business is part of your capital. A second acquisition through it may fall in the SBA's Business Expansion category. There, the lender may reduce or waive the injection if you show strong liquidity and positive net worth. Your company's cash flow can also fund deal costs.

That reduces how much you need to raise per deal. It does not remove the timing problem. If the deal needs outside equity, raise it before the LOI.

If you are a searcher

A traditional searcher solves the timing problem by design. Investors fund a search budget, typically about $400K to $600K, and get the right to invest in the deal, often with a 150% step-up. The search capital is raised first. The acquisition equity is committed in spirit but still has to be confirmed deal by deal.

A self-funded searcher has no such structure. Line up investor interest during the search, and turn it into signed commitments before the LOI.

Where these numbers come from: LOI-to-close and diligence timing are from BizBuySell; exclusivity ranges from BigIdeasDB. SBA injection, seasoning, limited-sources and Business Expansion rules are from SOP 50 10 8.1 as summarized by Cantrell Firm and Beancount. Preferred returns are from Searchfunder. Time to acquisition is from the Stanford 2026 Search Fund Study. Search budgets and step-ups are from Long Angle. 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

Can I sign an LOI with a financing contingency?

Yes. A financing contingency protects you if the lender declines. It does not protect your relationship with the seller if you miss the timeline because your equity was not ready.

Will investors commit before they see a deal?

Some will, if they trust you and the plan is specific. Others will only commit to a named business. Raise from the first group early and treat the second as upside.

What if a deal appears before the raise is done?

Be honest with the seller about timing, and ask for exclusivity long enough to close. If the gap is too large, pass. A rushed raise rarely ends with good terms.

What comes next

Investors who commit early will ask how they ever get their money back if you plan to keep the businesses: how holding-company investors get liquidity without a sale.

Related articles

• How do you raise capital for a holding company before the first acquisition?
• Fund, holding company or deal-by-deal SPVs: how should you raise?
• How do investors in a holding company get liquidity if you never sell?
• I already own a business. How do I finance buying a second one?
• 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.