Creative Financing - SPV funding

September 25, 2025

by a searcher from Oregon State University in Portland, OR, USA

Hello, I am working with a Debt Advisor who has what looks to me a unique way of closing an acquisition. They sell an aged company to you that they are calling an SPV (Special Purpose Vehicle) and then use that company to secure funding. The funding can come from one of three sources: - A "backyard bank" they find and work with who would be excited to have the transactions of a business hitting their books - 3% fee from the Debt Advisor - A "progressive bank" strategy where they work with many banks to secure all the funding, using the success of coming to terms with one bank to gain traction with the next. - 10% fee from the Debt Advisor - A "collateralized" option that involved buying debt and using that as the asset to gain a loan. - 15% fee from the Debt Advisor They suggest going with the first option, for what it's worth. I'm wondering if this is a reasonable way forward to closing a deal we have our eyes on. The Deal: - $21mm in TTM revenue - $2.3mm in TTM SDE - Asking price: $5mm + retaining a 20% stake for the seller The SPV Details: - $15,000 to purchase the SPV - 6 or less weeks to make the transfer - The Debt Advisor then executes on one of the above strategies, which we would choose "backyard bank". - They raise a $5.15mm loan from a bank using the due diligence and data room provided by the seller and additional details from me - The loan would be 10 years fully amortized at prime + 5.5% (so lets call it 13%) - The Debt Advisor charges 3% on $5mm: $150,000 as a fee and takes that from the loan, leaving $5mm for the purchase (assuming backyard bank option) The Net: - $15,000 + $150,000 in costs to close a $5mm loan - 10 year term @ 13% - Yearly cash flow after servicing loan: $1.2mm (assuming no gain or drops in the business) This seems like a good way to get a cash deal done quickly and without personal guarantees. Assuming we do the appropriate due diligence, does this seem like a reasonable path forward? Thanks for any advice, thoughts, and musings.

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

I have been in Commercial Lending for 30-years, and what you are talking about here does not make much sense to me on a number of different levels. I will try to explain why. First, on a business acquisition of the size you are talking about, lenders do not care if you are buying the stock of an existing entity or setting up a new entity and doing an asset purchase. There is no value in buying a company that has been around longer for the asset purchase because that company will not have the income and assets the Bank wants anyway. They are going to underwrite the business you are buying, rather than a stock or asset purchase. Secondly, as for their different financing options, none of that makes any sense to me either. If they are a typical loan broker, they would represent the deal to Banks that they work with and seek the best financing possible, whether a bank in the community the business is in or a regional or national bank. The fee structure for some of what they are talking about is really high on top of that. Third, if you are trying to avoid a personal guarantee, using an SPV is not going to help you do that. Usually most banks require some sort of guarantee unless the loan-to-value and loan-to-cost are really low and the debt service coverage ratio is really high like 2x or greater. Lenders also look at the strength of the balance sheet and collateral for the company you are buying to determine how much risk they might have that is not supported by the balance sheet or business assets / collateral. Lastly, I do not know how you buy debt and use that as an asset. That seems like you are just moving dollars around. If you bought a debt instrument and provided it as collateral, you would in essence be self-funding your deal with the debt instrument you put up. I would be happy to talk through this strategy, but it is not making much sense to me based on my years of experience. We have direct lending relationships with over 500 funding partners, and I have never seen anything like this before. Again, there could be something new here that I do not understand, but my suspicion is that is not the case. You can reach me here or directly at redacted For what it is worth, our standard fee for placing debt through our lending partners is 1% of the loan amount. Not 3% or 10%, which is very high. Good luck.

Reply by an investor
from Karel De Grote Hogeschool in Belgium

Hi Eric, why don't you do the following: Skip the aged SPV and the 13% fully amortizing note. They add cost, squeeze cash, and don’t help underwriting. Form a clean Delaware HoldCo with a merger sub and finance the $5.0M cash portion with a bankable mix that gives you runway. Starting with a senior ABL of about $2.0–$2.5M against A/R and inventory at roughly 9–11% all-in with interest-only up front and a $500k–$1.0M revolver for working capital. A seller note of $1.0–$1.5M at 6–8% with an interest-only period. And a $0.5–$1.0M mezzanine or SBIC piece at 11–14% that’s typically non-recourse to you. Keep the seller’s 20% rollover and shift $250–$500k of price into an earn-out paid over the first year or two based on EBITDA or revenue so you’re protected if performance misses. When you paper it, target DSCR of at least +1.3x after year one, no cash dominion unless there’s a covenant breach, total lender and advisor fees capped at 2% or less, and if a personal guarantee is unavoidable make it limited with an automatic burn-off once the deal meets a 1.75x DSCR for a sustained period. To win better pricing, bring an independent QoE covering financials and market, a one-year cash-flow model with base and downside cases that includes real management comp, capex and working capital needs, and a crisp 100-day plan for retention and quick EBITDA lifts. My opinion is that this will result in lower blended cost than 13%. Real breathing room from interest-only, minimal or temporary PG exposure, and a cleaner close without paying for a shelf company or a “backyard bank” fee.

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