Due diligence

September 18, 2023

by a searcher in Chicago, IL, USA

Looking for advice regarding due diligence on a budget. How do solo searchers on a tight budget handle due diligence when they have a business under LOI?

I am going to use the SBA to acquire a business but Im really stuck on the diligence process. I dont think I will have the money to spend on an Accounting firm to do the diligence work. The business I am looking at is $200,000 SDE at a 2x multiple and I have enough for the 10% deposit plus 6 SBA payments (savings I am required to have).

I was thinking of doing the diligence mself but I am not really experienced and fear I may miss some important items. Any help would be appreciated.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

There are several options here. First, some lenders will allow the due diligence cost to get built into the loan costs. Secondly, you can see if the seller will carry back a note and reduce your required down payment in return so you have more funds for the due diligence. Third, you could bring in outside capital or seek some sort of family gift for some of the additional equity you need for the due diligence. Lastly, you can use some of your current funds and build working capital into the SBA loan so you have liquidity post closing. It is not a hard SBA rule that a client have 6 months of payments in reserve post closing. Many lenders are looking at the overall post closing liquidity of the Borrower and company to see what works.

As for the due diligence, it is really about what you are comfortable that you can do on your own. If it is not a complex transaction, you could request a couple of years Bank statements and due to the analysis yourself. However, if it is more complex you probably want to hire someone. There are varying levels of QofE's you can do, and depending on the complexity of the transaction, you can limit what you need the outside firm to do.

I hope this helps. If you need to discuss financing options in more detail you can reach me here or directly at redacted Good luck.

Reply by a searcher
from Northwestern University in Chicago, IL, USA

Whatever you decide to do, don’t skip or not do. This is an important step, might be one of the most important things you can do to ensure a successful purchase. More often than not the diligence process identifies things which cause the buyer to back out. If you aren’t able to find an option that works within your budget, wait and save the money needed to be able to appropriately close on a deal. The deal costs can add up and sometimes searchers will lose out on these costs when a deal doesn’t go through. That being said they may be gaining by not acquiring and paying for something they thought they were getting.

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