How to start buying businesses: search funds, self-funded search and other routes
Short answer
There are four common ways to start buying businesses. A traditional search fund raises money from investors to pay for the search, then they fund the acquisition and the searcher earns equity. A self-funded searcher pays for the search personally and usually buys with an SBA loan, keeping more ownership. An independent sponsor finds a deal first, then raises money deal by deal. A solo buyer simply buys one business with savings and debt.
Which fits depends on deal size, your savings, and how much ownership and control you want to keep.
"I want to buy businesses" can mean very different things depending on who's paying for the search and the deal. Here are the main models without the jargon. We don't quote typical returns or fund sizes, because they vary widely and published figures often come from small, self-selected samples.
The models compared
| Model | Who pays for the search | Who funds the deal | Searcher's ownership | Typical deal |
|---|---|---|---|---|
| Traditional search fund | Investors | Same investors + debt | Earned over time; minority at start | Larger, profitable companies |
| Self-funded search | You | You + SBA loan + maybe investors | Majority | Smaller, SBA-sized |
| Independent sponsor | You | Investors raised per deal | Negotiated per deal | Varies |
| Solo buyer | You | Savings + SBA loan | All or most | Main Street |
What all of them need
- A clear target profile and a system for finding deals. See how to find a business to buy.
- A fast way to kill bad deals, because most deals are bad. Verifying earnings early is the cheapest filter. See proof of cash.
- For SBA-financed deals, at least 10% equity; investor money from non-controlling minority investors counts only as a limited source. See buying with other people's money.
What each model costs you
| Model | Your money at risk | Your control | Your personal guarantee |
|---|---|---|---|
| Traditional search fund | Low (investors fund search and deal) | Shared with investors and a board | Depends on financing; often limited |
| Self-funded search | Search costs plus equity | Majority, usually | Usually on the acquisition loan |
| Independent sponsor | Search costs; equity raised per deal | Negotiated deal by deal | Depends on the deal |
| Solo buyer | All equity | Full | Yes, on an SBA loan |
General patterns only; terms vary widely and should be set with your own attorney.
Choosing a path
If you have savings, operating experience and want control, self-funded search or a solo purchase is the straightforward route. If you want to buy a larger company and are comfortable reporting to a board of investors, a traditional search fund may fit. Either way, the first deal teaches you most of what you need for the second.
Worked example: what a self-funded searcher actually owns
Illustrative example, not a recommended structure or typical terms
A searcher finds a business for $2,000,000 with project costs of $2,150,000. Required SBA equity is 10%: $215,000. The searcher puts in $110,000 of savings. Two investors put in $105,000 together for 30% of the equity (each under 20%, so they don't have to guarantee the loan). The searcher owns 70% and personally guarantees the $1,935,000 SBA loan. Note the SBA rule that limited sources, such as non-controlling minority investors and standby seller notes, can supply no more than half the required injection: here the investors' $105,000 is just under half of $215,000. In a traditional search fund, investors would usually fund the whole equity and the searcher's stake would be earned over time; in this self-funded structure, the searcher keeps majority control in exchange for the guarantee and their own cash.
Red flags in searcher deals
- Buying the first deal that makes it past the screen because the search money or time is running out.
- Investor terms that leave the searcher with little upside after carrying the personal guarantee.
- Paying for growth the searcher will create rather than earnings the business has.
- An investor group with different timelines (some want a sale in five years, others want income).
- Skipping a proof of cash on a small deal because "it's only $1 million".
Raising money from investors
If you take investor money, either for the search or the deal, you're selling securities, and securities laws apply even to small private raises. Most searchers use private offering exemptions; get a securities attorney to set up the documents and explain the rules. Agree in writing what investors get (equity, preferred returns, board seats, information rights), what happens if the search fails, and how decisions are made after the purchase. For SBA deals, check how the lender will treat each investor's money and whether any investor will be a 20% owner who must guarantee.
Running the search like a process
- A written buy box: industry, size, geography, must-haves and deal-breakers.
- A weekly volume target: listings reviewed, owners contacted, brokers called.
- A one-hour screen for every lead, and a fast earnings check for those that pass.
- A simple pipeline tracker: stage, date, next step, reason for passing.
- Lenders and advisers lined up before you need them: an SBA lender, an attorney, a CPA.
- A monthly review of what's working (channels, response rates, deal quality) and what to change.
Most of the time in a search goes into deals you don't buy. The faster you can tell which is which, the more chances you get at the one you do.
Questions to answer before you start searching
- How long can you search without income, and what will it cost?
- How much equity can you put in yourself, and how much would you raise?
- Are you prepared to personally guarantee the acquisition loan?
- What size and type of business can you run on day one?
- Who will advise you: attorney, CPA, lender, and someone who has bought a business before?
Your first 100 days as an owner
Searchers spend years finding a company and very little time planning what happens after closing. Whatever model you used, the early months look similar:
- Listen. Meet every employee and the largest customers and suppliers, with the seller where possible. Change as little as you can.
- Take control of cash. Bank accounts, payment approvals, payroll and a weekly cash report in your name.
- Report to your investors or lender. Agree the format and cadence early, and keep to it even when the news is mixed.
- Pick one or two improvements. Choose ones the team agrees with, such as pricing on renewals or a key hire, and finish them.
The common mistake is changing too much too fast, before you know which habits are holding the business together.
What lenders and investors look for in a searcher
Whichever path you take, the people funding you are judging you as much as the deal. They will usually want to see relevant management experience, a clear and narrow search focus, evidence that you can work through diligence methodically, enough personal cash to meet the equity injection and live during the search, and a credible plan for the first year. Under SBA rules, owners of 20% or more must personally guarantee the loan, so a lender will also look at your personal finances and credit. Prepare a short buyer profile that covers each of these and send it with every first enquiry.
Track your search with a simple pipeline: contacts, calls, NDAs, LOIs.
Frequently asked questions
What is entrepreneurship through acquisition (ETA)?
Becoming a business owner by buying an existing company rather than starting one. Search funds and self-funded search are common ETA models.
How does a traditional search fund work?
Investors fund the searcher's salary and search costs. When a target is found, they have the right to invest in the acquisition. The searcher typically earns equity over time based on performance.
What is a self-funded search?
The searcher pays for their own search and usually buys a smaller business with SBA financing and perhaps a few investors, keeping a larger ownership share.
Which is easier for a first-time buyer?
Self-funded search or a solo SBA purchase is more accessible, because it doesn't require raising a fund. It also concentrates risk on you personally.
How long does a search usually take?
It varies widely with the target size, industry and how many deals you can screen. Searches commonly take many months and can run well over a year. Budget your personal finances for a long search, and decide in advance what you'll do if you haven't found a deal by a set date.
Can I do a search part time while keeping my job?
Many self-funded searchers start part time, especially for outreach and screening. It slows the search, and sellers and brokers may want to know you can close and step in. Plan when you'd leave your job, and make sure your finances can handle the transition period.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (equity sources; minority investor rules)
- Investor.gov (SEC investor education, including private offerings)
- SBA: 7(a) loans
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.