BUSINESS FUNDING

How a Deal Actually Closes: From First Conversation to Funded

By Baruch Mackliff, the Capital Commander · PRBE Capital

Topic: Business funding and what it costs you

Owners who have never closed a funding deal tend to picture one meeting that goes well. What actually happens is a sequence, most of it unglamorous, with a different failure mode at every stage.

Here is the real order, how long each part genuinely takes, and the five things that most often stop a deal everybody still wants.

The sequence

One. The first conversation, and the screen. A lender or an investor is deciding in that first meeting whether to spend any more time on you. They are screening, not deciding. Most conversations end here and most of them should.

Two. The diligence request list. If you survive the screen, you get a list. It will ask for financial statements, tax returns, the entity documents, the ownership record, material contracts, the customer concentration, the debt already outstanding and the background of the people in charge. Receiving this list is the first real signal that somebody is serious.

Three. The data room. You put the answers somewhere the other side can read them. This is a real stage with real consequences, covered below.

Four. The term sheet or the letter of intent. The economics and the main terms, written down, mostly non-binding. This is where price gets argued.

Five. Confirmatory diligence. Everything they believed at stage two now gets verified. Quality of earnings work. Calls to customers. Legal and lien searches. This is the stage where deals die.

Six. Definitive documents. The lawyers draft. A purchase agreement or financing documents, disclosure schedules, ancillary agreements. Every fact you asserted casually becomes a representation you are signing.

Seven. Closing conditions. Things that must be true before money moves. A consent from a landlord. A lender releasing a lien. A regulatory approval. A key contract assigned. Insurance bound.

Eight. Funding. The wire. Often into escrow first, then released once the conditions are certified as met.

How long each stage genuinely takes

Honest ranges, with the caveat that every one of them runs at the speed of the slowest party rather than the fastest.

• Getting to a first conversation with the right investor: months, and the relationships behind it often take a year or more to build. Anyone selling you a shorter version of this is selling you a list.
• First conversation to a diligence list: days to a few weeks. Silence here usually means no.
• Assembling a data room from scratch: two to six weeks if your records are not already organised. This is the part you can start today without anyone's permission, and the part owners skip.
• Diligence list to term sheet: two to eight weeks.
• Term sheet to definitive documents: three to eight weeks, longer if diligence turns something up.
• Closing conditions: the wildcard. Days if everything is internal. Months if a third party has to sign.
• Signing to funding: usually days, occasionally simultaneous, occasionally staged across several dates.

Add it up honestly and a straightforward deal runs a quarter to two quarters from the first real conversation, assuming nothing breaks.

The data room, and what an empty one says about you

A data room is the organised set of documents a counterparty reads while deciding whether to proceed. Historically a physical room. Now a folder with permissions on it.

Build it with a numbered folder structure, consistent file naming and version control, so the newest copy of any document is obvious to someone who has never met you. Set permission tiers, so the sensitive material opens later rather than on day one. Track who opened what, because that tells you who is actually working.

Then understand what it signals. A well-organised data room reflects on the quality of the operator, and a disorganised one does the same in the opposite direction. A counterparty who cannot find your tax returns is forming a view about how you run everything else, and they will never tell you that is what happened.

Start it before you need it. An owner who can answer a diligence list in four days instead of four weeks changes the temperature of the entire process.

What a term sheet binds, and what it does not

Most of a term sheet is non-binding. The economics can still move. A small number of provisions usually do bind, and they matter more than their length suggests.

• Exclusivity, or the no-shop. For a stated period you may not negotiate with anyone else. That clock is a real asset you are handing over, so watch its length.
• Confidentiality.
• Expenses. Who pays the legal bill if the deal dies. Read this one twice.

There is also a sequencing discipline worth borrowing from people who close deals regularly: the letter of intent comes first and the purchase and sale contract comes last. That order is not administrative. The letter is where both sides agree on shape while either can still walk away. Reversing it means negotiating the fine detail of a deal whose shape was never settled.

The five things that most often stall a close

One. Financials that do not tie out. The reported number and the real number differ more often than owners expect, usually for ordinary reasons. Revenue recognised early. Owner expenses sitting inside operating costs. Add-backs nobody documented. When a quality of earnings review restates the number the price was based on, everything reopens.

Two. An ownership record that cannot be evidenced. Stock promised verbally. A former partner with an unresolved claim. Shares issued without a board consent. Any gap between the cap table and the documents behind it has to be cured before anyone funds, and curing it needs the cooperation of whoever sits on the other side of it.

Three. Entity housekeeping. A lapsed good standing. A registered agent who resigned. A missing consent. An entity name that does not match the name on the bank account. All fixable, all costing time at the exact moment you have none.

Four. A third party who has to say yes. A landlord consenting to an assignment. A lender with a change of control clause. A major customer whose contract cannot be transferred. A franchisor. A regulator. This is the most common reason a deal everyone agrees on sits still for a month, and it is the one you can map in advance by reading your own contracts.

Five. A late finding. An undisclosed liability. A lawsuit nobody mentioned. An unfiled return. A key employee resigning mid-process. The discovery itself is survivable. Discovering that you knew and said nothing usually is not.

A sixth belongs in a category of its own: silence. A counterparty who stops responding is almost always re-underwriting internally, and the remedy is a direct question rather than more follow-up.

Where you currently are

Locate yourself honestly.

• Nobody has sent you a request list: you are before stage two, whatever the meetings felt like.
• You are assembling documents under time pressure: you are at stage three and paying the price of not starting earlier.
• You are arguing about valuation or rate: you are at the term sheet.
• Lawyers are exchanging drafts: you are in definitive documents and the deal is real.
• Everyone agrees and nothing is moving: you are in closing conditions, and somebody outside the room is the reason. Find out who.

If the deal dies, capital raised for it does not automatically vanish. Depending on how it was taken and what was promised, it may be redeployable against an equivalent asset, and returning it is always available. Reputation compounds faster than capital does.

Where PRBE fits

We work with owners on the parts of this that can be built before a counterparty ever appears: the records, the structure and the document set that makes stage three a week instead of a month. That is a conversation about your file, and it commits you to nothing.

This is an explanation of how these processes generally run, not legal or investment advice. Every deal carries its own documents and its own conditions. Have counsel review anything you sign.

Common questions

How long does it take to close a business funding deal?

From the first serious conversation, a straightforward deal commonly runs a quarter to two quarters. Every stage moves at the speed of the slowest party, and closing conditions involving a third party are the usual wildcard.

What is a data room?

The organised set of documents a lender or investor reads while deciding whether to proceed. Numbered folders, consistent naming, version control and permission tiers, so nothing has to be explained twice.

Is a term sheet binding?

Mostly not. The economics can still move. Exclusivity, confidentiality and who pays the expenses if the deal dies are the provisions that usually do bind, so read those closely.

What documents will an investor ask for?

Financial statements, tax returns, the entity and governance documents, the ownership record, material contracts, customer concentration, outstanding debt and background on the people running the company.

Why is my deal taking so long to close?

The most common causes are financials that do not tie out, an ownership record with gaps, lapsed entity filings, a third party who must consent, and a diligence finding that arrived late.

What happens to the money if the deal falls through?

It depends on how it was taken and what investors were told. It may be redeployable against an equivalent asset, and returning it is always an option. Your counsel decides this, not a blog post.