Brokers don’t let buyers sign LOI w/o proof of funds?

searcher profile

February 23, 2024

by a searcher from University of Northern Colorado - Kenneth W. Monfort College of Business in Denver, CO, USA

Is this true? How do self funded searchers get under an LOI in order to raise capital if it’s common that brokers won’t let us sign an LOI without the proof of funds.

Most searchers probably don’t have the liquid capital to show proof of funds for deals over $2m and would love to understand how others have gotten past this.

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commentor profile
Reply by an intermediary
from The Johns Hopkins University in Gainesville, FL, USA
Let's be clearer here. First, brokers cannot prevent a Buyer from signing anything. If you are putting together and submitting an LOI, how can they stop you? Second, no broker or Seller wants to waste their time, so most brokers will ask for proof of funds. If I'm representing a Seller, I want to make sure that you have what is necessary to complete a transaction, especially capital! This may also include industry experience, which many banks look favorably upon. Third, in the 17 states like Florida that require a real estate brokers license to sell a business located in that state, brokers have legally-mandated responsibilities: one of these is to present ALL offers in a timely manner. Even if I am not representing a Florida business, I will present ALL offers received no matter how insubstantial. Nor can I prevent one of my Sellers from signing an LOI once presented. However, I will do all I can to assist my Sellers in making decisions that do not waste their precious time and resources. ^redacted‌'s suggestion to get your funding in place and include a 5-7 day proof of funds clause is solid advice.
commentor profile
Reply by an intermediary
from University of Oxford in Washington, DC, USA
While it is beneficial to have funds available/ lined up it is unreasonable to expect every potential buyer (especially a self funded searcher) to be in that position pre LOI. A broker who insists on this likely isn't familiar with transactions outside the traditional SBA model. Sadly there is a gap in the advisory ecosystem when it comes to the middle market between main street business brokers and investment bankers. This is very much in evidence in the "search fund" target range. Investment banks won't take on 1-3 million EBITA deals and many business brokers struggle with the complexity. Unfortunately we have seen poorly informed Advisors block a deal because they think they are protecting the seller from tire kickers. Good Advisors know that a well structured deal with a talented entrepreneur and a reasonable seller will always find the capital.
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