What Is Penstock Equity?
Independent sponsors face a unique challenge in the world of business acquisitions: they find and structure deals without a committed fund behind them, meaning they need to raise equity capital on a deal-by-deal basis. Penstock Equity, based in Birmingham, Michigan, was founded in 2022 with the explicit mission of solving this problem — providing committed minority equity capital of $1 million to $5 million specifically for independent sponsor-led buyout transactions.
Listed on VerSquare.com — a trusted platform for verified reviews and data in the SMB deal space — Penstock Equity has quickly established itself as one of the go-to equity partners for independent sponsors in the lower middle market.
What Makes Penstock Equity Unique?
Penstock Equity isn’t just another equity fund — it’s a firm built by independent sponsors, for independent sponsors. Here’s what differentiates them:
Exclusive Focus on Independent Sponsors
While many equity funds will occasionally participate in independent sponsor deals, Penstock’s entire mandate is to invest in independent sponsor-led transactions. This exclusive focus means they understand the independent sponsor model deeply — the economics, the challenges, the deal structures, and what it takes to execute successfully.
Former Independent Sponsors on the Team
The professionals at Penstock have walked in your shoes. They’ve led deals as independent sponsors themselves, which means they understand the value you bring to a transaction. They know what it takes to source, diligence, negotiate, and close a lower middle-market deal — because they’ve done it.
They Let You Lead
Many equity investors want to take control or impose their own processes on a deal. Penstock takes a different approach — they prefer to work with independent sponsors who can lead all aspects of the transaction. They understand and respect the value independent sponsors bring, and they compensate sponsors fairly for their work.
Support When You Need It
While Penstock prefers sponsors who can lead independently, they’re not hands-off if you need help. The team can provide support and guidance through diligence, negotiation, capital raising, documentation, and the ownership phase if the situation requires it.
Committed Capital for Certainty of Close
One of the biggest advantages Penstock offers is committed capital. When you’re competing for a deal, having an equity partner with committed funds provides credibility and certainty of close — something sellers and intermediaries highly value.
Deep Relationships in the Lower Middle Market
Penstock brings extensive relationships within the lower middle market that can assist sponsors with debt and equity capital raises, transaction execution, and growing their businesses post-acquisition.
Penstock Equity’s Investment Criteria
Penstock Equity focuses on:
- Transaction Type: Independent sponsor-led buyout transactions
- Equity Check Size: $1 million to $5 million
- Position: Primarily minority equity positions, though they can be flexible as required by the transaction
- Market: Lower middle-market businesses
This focused investment criteria makes Penstock an ideal partner for independent sponsors who have identified acquisition targets in the $3 million to $20 million enterprise value range.
How Equity Investors Like Penstock Enable Zero-Down SBA Acquisitions
For independent sponsors targeting SBA-eligible businesses, Penstock Equity’s minority equity investments can play a critical role in structuring zero-down SBA deals.
Here’s the concept:
SBA 7(a) loans can finance up to 90% of a business acquisition. However, the lender requires a minimum equity injection — usually 5-10% of the total project cost. For a $3 million acquisition, that’s $150,000 to $300,000 in equity.
Most independent sponsors don’t have hundreds of thousands of dollars sitting in a bank account. That’s exactly where Penstock Equity comes in.
The zero-down structure with Penstock works like this:
- You source and negotiate the deal as the independent sponsor.
- Penstock Equity provides the minority equity injection ($1-5M), which includes the capital needed to satisfy the SBA’s equity requirement.
- An SBA-approved lender provides the senior debt (up to 90% of the acquisition cost).
- The seller may carry a subordinated note for any remaining balance.
- You close the acquisition with zero personal capital at risk, while maintaining operational control and a meaningful ownership stake.
This structure works because SBA lenders accept outside equity investors as a source for the required equity injection. The key is having an investor like Penstock who understands SBA deal structures and can provide committed capital that gives the lender confidence.
For a complete guide to structuring zero-down SBA acquisitions, visit: How to Buy a Business with Zero Down Using an SBA Loan.
Why Independent Sponsors Need Dedicated Equity Partners
The independent sponsor model has exploded in popularity over the past decade, and for good reason. It allows talented dealmakers to pursue acquisitions without the overhead and constraints of a traditional private equity fund. But it also comes with challenges:
- Deal-by-Deal Fundraising: Without a committed fund, you need to raise equity for every transaction. This creates uncertainty and can slow down deals.
- Credibility with Sellers: Sellers and intermediaries want to know you can close. Having a committed equity partner like Penstock immediately addresses this concern.
- Fair Economics: Not all equity investors understand or respect the independent sponsor model. Some try to squeeze sponsor economics. Penstock, as former sponsors themselves, compensates sponsors fairly.
- Speed to Close: In competitive deal processes, speed matters. Penstock’s committed capital and streamlined process can give you an edge.
How GoSBA Loans Completes the Capital Stack
With Penstock Equity providing the equity and an SBA lender providing the debt, you have a complete capital stack. But finding the right SBA lender — one who understands independent sponsor deals and zero-down structures — is critical. That’s where GoSBA Loans comes in.
GoSBA Loans has facilitated over $320 million in SBA business acquisition funding through 50+ lending partners. Here’s what we offer independent sponsors:
- Free SBA Lender Matching: We connect you with lenders experienced in independent sponsor and zero-down deal structures — at no cost.
- Free Business Plan: We provide a professionally written SBA business plan (valued at $2,500-$5,000) completely free of charge.
- Deal Structuring Support: Our team has deep expertise in SBA acquisition deals and can help you structure the capital stack with your equity partner.
- Zero Cost to Borrowers: GoSBA is a free service for borrowers. Our lender partners compensate us.
Get Started Today
If you’re an independent sponsor with a deal in hand — or actively searching for your next acquisition — GoSBA Loans can help you secure the SBA financing you need to close.
Contact GoSBA Loans today for a free consultation. We’ll help you put together the right capital structure, prepare your SBA loan application, write your business plan, and match you with the ideal lender — all completely free.
