How are you approaching LOIs & Valuation?

October 15, 2025

by a searcher from Harvard University - Harvard Business School in Austin, TX, USA

I’m evaluating businesses in the $0.5M–$1.5M SDE range (typically <$5M valuation). My current approach has been to submit fair, financeable offers — based on valuations that would hold if no retrading occurs during diligence. I structure my offers only after receiving indicative term sheets or confirmations from 2–3 SBA lenders. However, on several deals I’ve pursued, I’ve been consistently outbid — often by significant margins ahead of comps — including by other self-funded searchers. In many cases, I struggle to see how those valuations are financially sustainable unless they're putting significantly more capital. I don't have visibility into whether all those deals ultimately close, but know that some of them have not. Another trend I’ve noticed: broker-recommended lenders often appear willing to finance substantially higher debt levels (sometimes 2–3x more) than the lenders / loan brokers I’ve developed relationships with. Some difference in credit appetite is expected, but the magnitude has been surprising. I’d love to hear from others: 1. Are you seeing similar dynamics in this segment of the market? 2. How are you approaching LOIs — are you prioritizing realistic offers that assume no retrade, or leaning more aggressive early to secure exclusivity even if it makes for more challenging conversations later? What level of buffer is reasonable?

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

I had a similar experience during my search. I actually finished 2nd initially in bidding on the deal I closed. I was very honest and told them I liked the business and seller a lot, but didn't see how the math could work at the winning price. A month or so later, they called back because the deal fell through. I felt like I gained extra credibility because I called it correctly. So my advice would be to hang in there if you're initially outbid and (assuming you do really like it) make it clear you really like the business and seller and to please keep in touch if the deal doesn't close. You might get a second chance at a more reasonable price.

Reply by a lender
from Clemson University in Reston, VA, USA

Keep your strategy as it’s your risk strategy that you are comfortable with. There will always be higher offers and lower offers. Some searchers have a better understanding of the market and some of lower. Your strategy will eventually find the right balance and fit for you. Lenders at the end of the day have to convince their executives that the risk is worth the investment to pursue and if they use SBA to back up their decision then they may not be as confident about their decision as a non SBA lender. I would look to a non SBA lender bc they will break down the opportunity based on realistic risk and advise you based on potential. We as in non SBA lenders look at the management team staying in place, historical trends on customers, concentrations risks and our own multiple experience. I’m happy to walk through what we look at during our review process. redacted I promise you will gain more insight on what bankers look for in the deals and the value you want from the deals that you can get from the opportunities.

+15 more replies.

Join the discussion