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In our continued quest of radical transparency, follow along as we are openly sharing information to build trust and keep all stakeholders updated through a monthly newsletter. Thanks for joining us on this journey!
TLDR
Thanksgiving shoutouts to our network
Realizing the benefits of building long-term relationships
On track for our strongest quarter yet
Deep Dive: The Role of Seller Notes in SMB Acquisitions
Final Thoughts from Josh: Turning Setbacks into Momentum
Shoutouts
In the spirit of the Thanksgiving holiday this past month, we thought it would be important to give a well-deserved and much appreciated shoutout to the Brandt Point team and our support network.
Thank you to our families and friends that have been so incredibly encouraging of our journey.
Thank you to our mentors for offering your guidance and for challenging us to push through.
Thank you to the BPH team! We are so grateful to have our interns with us to make sure we hit our goals and make a strong push to finish the year strong.
And a HUGE thank you to our amazing wives for your unwavering confidence and support through this rollercoaster ride. We could not do this without you.
Wins & Losses
Win: Finding high quality deals in a slow but crowded market → We started building relationships with brokers, lenders, and mentors over a year ago when Brandt Point was just an inkling of an idea, and now we are seeing the fruits of that labor start to pay off. We are getting quicker looks into on-market deal flow, and we are getting introduced to proprietary deals through these connections made many months ago. This is a relationship business, so build them often!
Win: Exceeding our KPI metrics → The team leaned into the goal of making Q4 our strongest quarter yet and we are doing just that. When local deal flow has slowed, our team is getting creative to find deals across the country for potential opportunity. Activity level and effort are at all-time highs, and we are pushing hard so we can all take a well-earned Christmas break with our families.
Loss: Passing on good companies → We had a few deals this month that we really liked and formed great relationships with the sellers, but ended up passing on those deals. We passed for various reasons, but it ultimately came down to the deal structure and the growth potential. We feel good about our final decisions to pass, but it’s hard to do when we’ve built a bond with the seller.
Activity by the Numbers: November
330 = Newsletter subscribers
42.7% = Last month's newsletter open rate
44 = Deal-specific outreach to CO business brokers
19 = Deals evaluated
25 = Meetings with sellers/owners
0 = LOIs submitted
Subject Deep Dive:
The Role of Seller Notes in SMB Acquisitions
When buyers and lenders structure a deal for a small business acquisition, one common tool is the inclusion of a seller note—a portion of the purchase price that the seller agrees to finance. While it might feel counterintuitive for a seller to accept this arrangement, seller notes are frequently requested by buyers and required by SBA lenders as a form of risk mitigation. This month, we’ll explore why seller notes are integral to SBA-backed deals, the benefits they provide, and how they work in practice.
Why SBA Lenders Require Seller Notes
From a lender’s perspective, seller notes reduce risk by aligning incentives between the buyer and seller. The seller’s willingness to carry a note demonstrates their confidence in the business’s future performance. For the buyer, it provides additional financing flexibility. Lenders value seller notes because they help mitigate risks such as:
Uncertainty in financial performance or projections: The seller's vested interest ensures they believe the business will perform as expected.
Customer or employee retention risks: A seller’s financial involvement provides reassurance to employees and customers about continuity during the transition.
Customer concentration concerns: If revenue is heavily reliant on a few key customers, a seller note can act as a buffer for the buyer to diversify the customer base post-closing.
Typical Terms of a Seller Note
Seller notes generally have terms of 5-7 years with interest rates in the range of 5-8%. These terms will be subordinate to the primary SBA loan, meaning the seller is paid only after the bank.
What is a Forgivable Seller Note?
A forgivable seller note includes provisions where the buyer is excused from repayment if specific conditions are met—such as achieving certain financial milestones or retaining certain key clients. This tool is particularly useful in addressing financial projections that both parties agree are optimistic and practical but not guaranteed. It provides upside potential to the seller while protecting the buyer if projections fall short.
Why Buyers Insist on Seller Notes
Buyers ask for seller notes as both a financing tool and a signal of goodwill. It shows the seller is confident in the business’s value and willing to share the risk. While sellers may initially resist, understanding the buyer’s perspective—and the lender’s requirements—can help set realistic expectations and pave the way for a successful sale.
Seller notes are more than just a financing tool—they’re a bridge that builds trust between buyer, seller, and lender, ensuring all parties are invested in the business's continued success
Final Thoughts
Josh here - Losing out on four LOIs in two months was tough, especially since we felt poised to win. However, after reflecting on what went wrong, we’ve fine-tuned our approach and are better prepared for future opportunities. As the dust settled, new, exciting prospects emerged, reminding us that setbacks often lead to stronger comebacks. Energized and optimistic, we’re ready to keep building momentum and finish the year stronger than ever!
Your support fuels our journey forward, and we are immensely grateful.