Buying A Company With Limited Equity (Realistic Structures)

A seller note is one of the cleanest ways to reduce the equity check, when the seller is credible and the terms align with senior lender rules.

• Often subordinated with payment blocks during senior amortization.
• Works best when the seller is confident in cash flow continuity.
• Term drafting matters. Bad terms scare senior lenders.

Seller rollover keeps the seller invested post-close. It reduces cash at close and improves perceived alignment.

• Common in sponsor-led deals where the seller stays involved.
• Governance terms must be lender-friendly.
• Cleaner than extreme earnouts in many situations.

Earnouts defer purchase price based on performance. They can solve valuation disagreement, but they introduce operating tension if drafted poorly.

• Define metrics tightly. Ambiguity turns into litigation risk.
• Coordinate with senior covenants and restricted payments.
• Best used as a smaller bridge, not the whole equity gap.

Senior secured debt sized to stable EBITDA. The most cost-effective path when financials are clean and concentration risk is manageable.

• Expect covenants, reporting, and diligence discipline.
• Equity still needs to be real and verifiable.
• Purchase agreement terms must match lender requirements.

One lender facility blending senior and junior risk. Useful when speed and simplicity matter and the lender wants full control of the credit.

• Reduces coordination friction across multiple lenders.
• Pricing reflects the risk and timeline compression.
• Strong documentation and quality of earnings become central.

ABL can increase proceeds when receivables and inventory are meaningful and clean. It is not “easy money.” It is controlled money.

• Borrowing base reporting, eligibility rules, and field exams.
• Works well for distribution, light manufacturing, and inventory-heavy models.
• Often paired with a term loan for purchase price.

Junior capital fills the gap when senior sizing caps out. It is priced for risk and requires tight intercreditor coordination.

• Senior lender consent and intercreditor terms are mandatory.
• Cash flow must support combined debt service under stress.
• Expect stronger controls and higher all-in cost.

Preferred equity can reduce dilution compared to common equity, but it brings governance and control provisions that matter in operations.

• Priority return and protective rights are standard.
• Must align with senior covenants and restricted payment rules.
• Best when reporting and controls are institutional-grade.

If your equity is limited, raise it. The credible path is a structured raise with a clear use of proceeds and controls, not a vague pitch deck.

• Lead investor expectations: governance, reporting, and downside protection.
• Clear purchase terms and timeline increase close probability.
• Capital partners underwrite the same risks lenders do.

For operator-buyers, a search fund style structure can solve limited equity by pairing the operator with committed investors and disciplined governance.

• Operator focus with investor capital and oversight.
• Works when the operator has a credible plan and fit for the target.
• Requires a tight closing process and lender-ready documentation.

Limited equity deals die in the purchase agreement. Over-aggressive terms create lender discomfort and delay closing.

• Working capital target and true-ups need to be clear.
• Earnout and seller note terms must fit senior restrictions.
• Escrow, indemnities, and covenants must match real risk.

If your materials are scattered, the lender will assume the business is too. Packaging is not cosmetic. It is credit access.

• Financials, interim statements, and addback support.
• Customer and supplier concentration, contracts, and KPIs.
• Transaction sources and uses and post-close liquidity plan.

Limited equity stacks require controls. Without controls, capital partners price the deal like it will drift.

• Clear reporting cadence and covenant compliance plan.
• Defined approval rights for budgets, distributions, and leverage.
• Bank account controls and documented cash management.