Guide · Updated
Self-Funded Search vs. Traditional Search Fund
Most people who decide to buy a business rather than start one hit the same fork early: raise a search fund, or self-fund the hunt and lean on an SBA loan. There is no universally right answer. There is an answer that fits your capital, your risk appetite and the size of business you want to run.
The two paths, side by side
| Traditional search fund | Self-funded search | |
|---|---|---|
| Who funds the search | Investors fund a salary while you search, usually 1 to 2 years. | You fund yourself. No search salary, so the clock is personal. |
| Typical deal size | Often $5M to $30M+ enterprise value, equity-heavy. | Usually under the SBA 7(a) $5M loan cap, so smaller enterprise value. |
| Financing | Mostly equity from the search fund investors plus some debt. | SBA 7(a) loan plus a seller note plus your equity. |
| Ownership you keep | Commonly 20% to 30%, earned in tranches tied to performance. | You own nearly all of the equity you put in, less any partners. |
| Control | A board of investors; you run it but you answer to them. | You answer to the SBA lender and yourself. |
| Speed | Slower: raising the fund comes first, then the search. | Faster: you can move the day you find a deal that clears DSCR. |
| Personal risk | Lower cash at risk; investors backed the search. | Higher: your equity and usually a personal guarantee on the loan. |
When a traditional search fund fits
If you want to chase a larger business, you do not have the savings to fund your own search and acquisition, and you are comfortable answering to a board and owning a minority stake, the funded path exists for exactly that. Investors underwrite the risk of the search itself, which is real: many searches never close a deal.
When self-funding fits
If you want to move fast, keep control, and own nearly all of what you build, self-funding is the path, and SBA 7(a) financing is what makes it possible at a reasonable equity check. The trade-offs are honest: no salary while you search, a personal guarantee on the loan, and a deal size capped by the $5 million SBA loan limit. Most self-funded searchers are buying solid, unglamorous businesses in the low millions, where a deal that clears SBA DSCR with cushion is the whole game.
What both paths share
Whichever route you take, every individual deal lives or dies on the same questions: do the CIM's numbers match the tax return, which add-backs survive underwriting, and does the cash flow cover the debt. Those are decisions you make deal by deal, starting with the first 48 hours on a CIM. The path sets your economics; the numbers on each deal set whether it is worth pursuing at all.
Frequently asked questions
What is a self-funded searcher?
A self-funded searcher looks for a business to buy without raising a dedicated search fund first. They cover their own costs during the search and finance the acquisition mainly with an SBA 7(a) loan, a seller note and their own equity, keeping most of the ownership.
What is a traditional search fund?
In a traditional search fund, investors fund the searcher's salary and expenses during a one to two year search in exchange for the right to invest in the eventual acquisition. The searcher ends up with a minority stake, typically earned in tranches tied to performance.
Which path lets me keep more ownership?
Self-funding. Because you are not giving investors the economics of a search fund, you keep nearly all the equity you contribute. The trade-off is that you carry the cost and the risk of the search yourself.
Is SBA financing only for self-funded searchers?
No, but it is central to self-funding. SBA 7(a) loans are capped at $5 million, which is why self-funded deals tend to be smaller than the deals a traditional search fund chases with investor equity.
Can I switch paths partway through?
Some searchers start self-funded and bring in equity partners for a larger deal, or raise a small funded search. The financing structure is a decision per deal, which is why screening each deal's DSCR early matters regardless of path.