Are there groups that fund LOI deposits?

by a searcher from Columbia University

3 years ago

I'm working on a transaction with a seller that stood really firm on his deposit. With some negotiating, i got the deposit down to 3% and executed the LOI. I could place this myself -- but have another deal coming around the corner for which I might need the same dollars.

Does anyone know of people or groups who would place such a deposit? It is fully refundable and ergo riskless, and I'm happy to pay some reasonable carrying cost. 

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professional from University of Southern California - Marshall School of Business

I and my buyer-clients call that kind of nonsense: "Pay to Peek."

Don’t pay to peek.

Never make an earnest money deposit or sign a purchase contract—no matter how many contingencies are in it—before you and your advisors have analyzed the company, obtained an expert opinion of value and defined alternative terms of purchase.

If you doubt the wisdom of this advice, make an offer on a business you don’t really care about. Later, when you think you know what it is worth, try explaining to the seller why your offer must change.

1 year ago | like reply | 1 like

intermediary from Western New England College

Traditional hard-money lender (like someone who funds a real estate fix n flip) is the best route for this. It's win-win for them, as the deposit is refundable (per what you said), so hard to imagine they wouldn't lend the money for it. In my general experience, when we were buying companies, we always showed proof of funds up front - it's just a better way of doing business - the seller doesn't feel jerked around when you say you're interested, but also say you have to try to raise the money before committing. When we have sold companies, we asked for a deposit to prove they are serious enough for us to accept the LOI and stop discussions with other interested parties.

3 years ago | like reply | 0 likes

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