Now that October 1st is almost here, I wanted to share what we're actually seeing on the ground - because the reality is more nuanced than the doom and gloom some people expected. The biggest thing we're seeing right now is a major rush to close before the new SOP takes effect. If you have an active deal and want to be grandfathered under the old rules, getting an SBA loan number issued before October 1st is critical. To make that happen, you need your cap table finalized and you should be pushing your banker hard to get that number issued immediately. Tight, frequent communication with everyone involved is not optional right now - it's the difference between making it and missing it. As for deal flow more broadly - we're not seeing a slowdown. If anything, we're seeing an uptick that's consistent with the seasonal pattern we typically see this time of year. The pipeline feels healthy. What we don't yet know is what happens on October 2nd and beyond. For funds like ours, the biggest unresolved question is how to continue investing in SBA deals given the new trust guaranty requirements. Most funds - ours included - have trusts as part of their LP base. We’re actively exploring possible paths, potentially creating a second vehicle that doesn’t have trusts as owners, but to be transparent that's still up in the air. That remains the biggest barrier for us to commit to SBA deals post-October 1st, and we'll share more as we get clarity. If you have a deal in flight and are trying to beat the deadline, hit reply - we're happy to help however we can. Partner Perspective: Caleb Basile, QoE Prep: Cash vs. Accrual: Why the Story Changes When You Look at the Balance Sheet Most small businesses file their taxes on a cash basis. Most buyers evaluate them the same way. That's a problem. Cash basis accounting records income when money hits the bank and expenses when they leave it. Accrual accounting records income when it's earned and expenses when they're incurred. The difference sounds technical. In practice, it can completely change what you think you're buying. Here's a real scenario: I looked at a small business's last three years of tax returns, filed on a cash basis, as most SMBs are, since most people see cash basis as the more conservative way to do accounting. The business showed $500K one year, $500K the next, and then $1M in income in the year right before the owner decided to sell. That jump looks great on paper. But when you look at what actually changed on the balance sheet - accounts receivable, inventory, and accounts payable - the picture changes fast. Old invoices got collected, inventory got drawn down, and vendor payments got delayed. Stack those three adjustments and EBITDA drops from $1M to $300K. On a 4x multiple, that's a $2.8M swing. The point isn't that cash basis is always misleading. It's that tax returns are built for the IRS, not for buyers. If you want to know what you're actually buying, you need someone looking at both stories. That's what a quality of earnings report does. Full breakdown here, and feel free to reach out at redacted if you want to talk through what cash versus accrual accounting would look like for your deal. Plus: - Fascinating data out of the UNC Institute for Private Capital on 344 independent sponsor deals - the headline finding is that independent sponsor deals outperformed similar private equity transactions of the same size, with average returns of 2.9x MOIC and 29% IRR on fully exited deals. I shared my five biggest takeaways here - worth a read if you're thinking about the risk/return profile of this asset class. - If you're confused on the SBA's implementation of the QoE and closing mechanics changes in their latest SOP, you're not alone. Several loan brokers, QoE Providers, and SMB law firms co-signed two letters to the SBA this week asking for policy clarifications on how QoE engagements should work, how working capital true-ups should be treated at close, and how seller escrow holdbacks should be handled. The current ambiguity is creating real problems for buyers and lenders alike, and this is worth following closely. Full post here. - Great discussion on what successful searchers found out about the business they acquired in the first 90 days that they didn’t foresee before they closed. Of note: much of it is people-related. Some key examples: the extent of the previous owner’s involvement, the depth of their relationships with key clients, staffing and employee challenges, and the delta between how processes are documented versus actually executed.redacted