The Beginner’s Guide to SPVs

A Special Purpose Vehicle is a single-purpose legal entity, usually a manager-managed LLC, created to acquire and hold one business or one set of assets. Sellers want certainty and a single counterparty. Lenders want a clean borrower with clear collateral and predictable governance. Investors want liability protection and a simple waterfall they can understand. An SPV delivers all three. It ring-fences risk, keeps ownership clean, speeds underwriting, and simplifies exits. Structure is strategy, and the right container lowers your cost of capital while raising your odds of closing.

When an SPV Is the Right Tool

Not every deal needs an SPV. Complexity for its own sake is a tax you’ll pay later. An SPV makes sense when you are raising passive equity, need deal-level liability isolation, plan to sell or refinance within a few years, or when real estate is part of the package and you want to separate property from operations with an Eligible Passive Company (EPC) / Operating Company(OC) split. It may not be worth the effort if it’s just you and a lender with no outside equity, if the SBA requires personal guarantees from every 20%+ owner and you can’t consolidate the cap table, or if the seller is hypersensitive to complexity and a simple borrower entity would close faster. If you don’t need outside equity, don’t create it.

How to Set Up an SPV

The setup should be so clear you could draw it on a napkin. Form a manager-managed LLC, give it a clear name like “TargetName Acquisition SPV, LLC,” and set a single-asset, single-mission purpose.

Draft an operating agreement that keeps you in control and maintains simple and honest economics: a preferred return, return of contributed capital, and then a clean split of the remaining cash flow. Standardize investor rights and protect continuity.

If raising equity, prepare subscription agreements, investor questionnaires, disclose deal-specific risks, and comply with securities laws. Under Reg D 506(b), you cannot publicly market and may only accept accredited, plus a limited number of sophisticated investors. Under Reg D 506(c), you can market broadly but must verify accreditation.

Operationally, keep money clean. Get an EIN, open a dedicated bank account, and never commingle funds. Align your lender and seller early, identify borrowers and guarantors, and lock in subordination terms for seller notes.

After closing, the SPV acquires the target, operations generate cash, and distributions flow through the waterfall. Report quarterly with consistent KPIs and financial statements, and issue K-1s annually. Build the exit into the structure from day one with a lightweight data room and operate to the standard of your likely buyer.

The SPV Archetypes

• The Single-Asset Buyout SPV is best for one company, a handful of investors, and a mix of bank debt and seller financing.

• The EPC/OC Split separates real estate from operations, unlocking real-estate lending and creating an extra profit center through rent.

• The HoldCo with deal-by-deal SPVs is ideal for roll-ups. A HoldCo owns each deal-level SPV, and investors can choose between broad exposure at HoldCo or targeted exposure at the deal level.

Match the container to the job. Don’t force a roll-up chassis on a single deal—or vice versa.

Building the Capital Stack

An SPV works best when the capital stack says “yes.”

Senior debt is the cheapest capital but comes with strict covenants and diligence. Seller notes bridge valuation gaps, offers tax deferral, and signals seller confidence, though SBA rules apply. Equity is the most expensive capital, so keep the cap table tight. Preferred equity at HoldCo is advanced and should only be used if you and your lender can explain it on a napkin.

Debt sets the floor. Equity prices the upside. Seller notes buy you time.

Deciding If You Need an SPV

The decision is simple. If you need outside equity, you likely need an SPV. If your investors are passive and numerous, an SPV provides clean documentation and management. If real estate is involved, an EPC/OC split is often best. If you want the option to sell or refinance independently later, the SPV is the right move.

Mistakes That Sink SPV Deals

Many deals fail not because of the business but because of the container. Mistakes include improper solicitation, too many small investors, overcomplicated waterfalls, commingled funds, surprise guarantees, underfunded working capital, and weak reporting discipline.

Simple beats clever. Clean beats complex. Predictable beats perfect.

The Five-Minute Script

When you are across from a seller or lender, clarity lowers the temperature. Say this:

“We’ll form [TargetName] Acquisition SPV, LLC, a single-purpose entity created solely to buy your business. That entity will be the borrower with the bank, the issuer to our investors, and the counterparty on your seller note. Funds flow in, operations generate cash, and distributions follow a simple waterfall we’ve already documented. You’ll work with one buyer, the lender underwrites one borrower, and if we sell or refinance later, we can do it cleanly without disturbing anything else.”

Common Questions

• Can I buy through my personal LLC? You can, but it mixes risks, complicates exits, and irritates lenders.
• Do I need a HoldCo on my first deal? Not usually. Start with a deal-level SPV and add a HoldCo when you have multiple acquisitions.
• Will SBA work with an SPV? Often yes, but expect personal guarantees and strict compliance with seller-note standby terms.
• Can non-accredited investors participate? Sometimes under 506(b). If you want to market broadly, 506(c) with verified accreditation is safer.
• What if I want to add real estate later? Create an EPC entity and lease it to the operating company on arm 's-length terms.

If You Remember Nothing Else

One asset, one entity, one borrower. Keep the cap table tight. Use a simple waterfall. Fund working capital honestly. Build the exit while you operate with clean governance, clean data, and clean books.

The Parable of Glazier’s Frames

A young glazier created stunning stained-glass panes but framed them in mismatched wood. Deliveries were tense, installations painful, and buyers hesitant. An older craftswoman examined his work and said, “Your glass is fine. Your frames are wrong.”

She taught him to build fitted frames first—uniform, labeled, and sized for the pane. Suddenly, every window traveled safely, was installed easily, and was sold effortlessly. When he expanded, he didn’t rebuild the studio; he simply added more frames.

That is the SPV. The business is your art. The SPV is the frame that protects the asset, reassures the buyer, simplifies the loan, and makes the sale effortless. Acquisition artistry is knowing the craft and respecting the frame. Build the container with care, and your work will withstand the weather and command its price.