Anyone heard of a broker requiring 20k refundable deposit before LOI stage?

May 06, 2026

by a searcher in Salt Lake City, UT, USA

Hi everyone. I am a new individual searcher in Utah looking at main street service opportunities. I came across a roofing company that had 2.2m rev, 550k sde. As i went through the process with the broker he let me know the brokerage requires a 20k refundable deposit before entering the LOI stage. Is this normal? Any insights would be helpful. Thanks!

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Reply by a professional
from Babson College in Orlando, FL, USA

Hello Junior - A deposit before submitting an LOI is a bright red flag. A quick story. In a process run by a middle market investment bank, I was one of the final four bidders in the LOI phase. Five minutes before the deadline for LOI submissions, the CEO of the company called to congratulate me and express his excitement about working together. While I was on the call with the CEO, one of the bankers called. He explained how one of the bidders improved their offer at the last minute to include a $1.0M deposit. I immediately smelled a rotten story. One of the errors that the banker made: He did not know that I know two of the other three bidders. So, I asked the banker to hold and I called the two bidders. After I told them the story individually, they each laughed and expressed discomfort with the tactic. End of the story: The three of us did not change our offer. The fourth bidder won the LOI phase and eventually bought the company. We later learned that the fourth bidder did not make the offer that the banker suggested. The banker was trying to force us out of the process. We also learned that the banker had a previous relationship with the fourth bidder that no one else knew. The moral of the story: the request for the deposit forced three serious participants to effectively withdraw from the process. End of the story: The fourth bidder bought the company and drive it into receivership within 18 months.

Reply by an investor
from McGill University in San Diego, CA, USA

Not market for pre-LOI. Sounds like a broker trying to filter buyers. If I had to guess, they’ve either been overwhelmed with low-quality buyers or burned by tire-kickers. I wouldn’t put up a deposit at this stage. You don’t have terms, exclusivity, or diligence protections in place yet. Instead, show seriousness with proof of funds, references, and a lender pre-qualification letter. If they’re firm on requiring a deposit, I’d move on. That’s not a great signal for how the rest of the process will go.

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