We often get asked what" “typical” investor terms look like for non-SBA deals. We see three components: 1) Management Fee (your CEO salary), 2) Transaction Fee, and 3) Carried Interest, or Carry. I review those below, but for a visual explanation and a deeper dive into the independent sponsor waterfall, I filmed this video to break it down further. What we typically see is: Management Fee: The greater of 5% of EBITDA or a floor value, depending on the size of the deal. Equity: Determined by your personal investment + your transaction fee, which is often 2% of enterprise value (purchase price). Carry: Typically 20%, meaning you will get 20% of all proceeds from distributions or an exit “off the top” after your cash investors have their invested capital back plus a hurdle rate, which is typically 8-12%. Partner Perspective: Matthias Smith, Pioneer Capital Advisory: Most Buyers Ask for Too Little Working Capital. Then the J-Curve Hits. Of all the line items in an SBA acquisition, working capital is the one buyers most consistently shortchange. They negotiate hard on purchase price, they obsess over the seller note, and then almost as an afterthought they pencil in a working capital figure that barely covers a slow month. I see it on calls every week. Here is the problem. Every business you buy goes through a J-curve after close. The prior owner is stepping away, customer relationships are being tested, and your new payroll and debt service hit all at once before revenue has caught up to the story in the offering memo. That dip is normal. What is not normal is walking into it without a cushion. Working capital is that cushion. It is the cash inside the business that lets you make payroll, pay vendors on time, and absorb a soft quarter without scrambling. And here is the part most buyers miss: under the SBA 7(a) program you can finance working capital as part of the same loan. You are not limited to the purchase price. The total facility can run up to $5 million, and that cap includes any revolving line of credit you put in place. So the real question is not whether you can afford working capital. It is how much to build in before you close, when it is the cheapest and easiest it will ever be to add. On a recent call, a buyer was acquiring a business for roughly $1 million and had penciled in $200,000 of working capital. We talked it through and restructured it as $250,000 of working capital plus a $250,000 line of credit. Same deal, very different runway. The term portion gives you permanent cushion. The line gives you flexibility for seasonality and growth without going back to the lender, hat in hand, six months later. A few things I tell every buyer on this: • Ask for it up front. Adding working capital after close means a new loan, new underwriting, and new closing costs. Building it into the acquisition facility is dramatically cheaper. • Be ready to justify the number. Lenders will ask why you need the amount you are requesting. Tie it to something real: your monthly burn, receivables timing, inventory cycles, a known seasonal trough. A defensible number gets approved. A round number pulled from the air gets cut. • Keep business liquidity separate from personal liquidity. Working capital lives inside the business. It is not the same as the personal cash reserves lenders want to see on your own balance sheet after you close. You need both, and confusing the two is how buyers end up thin on each. • Do not skip the line just because it might sit unused. An undrawn line of credit costs you almost nothing, and it is the difference between weathering a surprise and defaulting on one. The buyers who close strong are almost never the ones who squeezed working capital to the bone to make a spreadsheet look tighter. They are the ones who funded the J-curve on purpose, at the lowest cost of capital they will ever have, on the day they signed. Working capital is not the line item to be a hero on. Plus: • New Yorkers - if you’re searching and looking to connect with other acquisition entrepreneurs, I'll be joining a panel at the Search Fund Coalition NYC Deal Team Day on June 24. There is an awesome line-up of content and speakers, and I'd love to see you there. Register here. • Great insights here from a searcher who quit his search after 2+ years and went back to his day job. His main hurdle? Having to leverage his house as part of his personal guarantee. Valuable takeaways for those in the trenches. • Brokers are pushing back on searchers who submit multiple LOIs — not because of the volume, but because of the vagueness. If you can't articulate why you want a specific business, the broker notices. So does the seller. The lesson is simple: a wide net only works if you can defend every cast. Before you submit an LOI, you should be able to answer why this deal, why this business, and why you are the right buyer. If you are submitting offers across five industries with the same generic thesis, expect to get screened out before you ever get to management meetings. This post breaks down why quality of conviction matters as much as quality of the offer.redacted