The seller runs the business until you fund.

The seller keeps the keys until your lender funds. You cannot direct the business. You can restrain it. Your leverage sits in three places: the interim operating covenants in the purchase agreement, the bring-down condition tested at closing, and the outside date. Everything else is persuasion.

Who actually runs the business between signing and closing?

The seller runs the business between signing and closing. The seller keeps the payroll, the bank account, the customer relationships and every operating decision. You have fixed a price and you are spending real money on diligence, appraisal, lender charges and counsel. You control nothing except your right not to close.

The seller’s incentive changes the day the agreement is signed. A dollar spent on a new truck buys an asset you receive at a price already agreed. A dollar not spent stays with the seller. So sellers stretch payables, defer repairs and discount to pull revenue forward. Draft for it.

What does an ordinary course covenant actually give me?

An ordinary course covenant is a promise by the seller to keep operating the business as it has been operated, and not to take listed actions without your written consent. It restrains identified acts. It does not transfer management. If the seller breaches it, your remedy is to refuse to close, to renegotiate, or to sue.

Refusing to close is only safe if a closing condition fails or the agreement gives you a termination right. Walk without one and your deposit and a breach claim are in play. A bare promise to operate “in the ordinary course” is not enough. Add a list built from this target’s facts, at its own trailing thresholds.

• Debt, liens, capital spending. No borrowing, equipment finance, factoring or new liens. No spending above a stated figure or outside the budget exhibit.
• Pricing and commitments. No price changes, no new discount programs, no prepaid or multi-year deals that pull revenue into the seller’s period, no new lease.
• Cash out and people. No distributions, bonuses, related-party payments or owner loan repayments. No hiring or firing above a stated pay level, no benefit or severance changes.
• Payment practices. Collections, payables and deposits continue on the trailing twelve months’ timing. Sellers breach this one most and buyers forget to write it.
• Assets and notice. No equipment sales, no inventory drawdown below a stated level, policies and licenses in force, prompt notice of a lost customer, resignation or lawsuit.

Pair the list with the bring-down. Condition your obligation to close on the representations being true at closing and the covenants performed. Read the qualifier: a bring-down softened by materiality or by a material adverse effect standard will not catch a small deliberate harm. Without it, you bought the business as it looked at signing.

Can I require the seller to get my approval on everything?

No, and you should not want it. A consent right so broad that nothing happens without your approval means you are running a company you do not own, without indemnity and without the bank account. It also weakens any later claim that the seller damaged the business. Where you and the seller compete, it creates an antitrust problem.

Section 1 of the Sherman Act reaches agreements that unreasonably restrain trade. That is your problem only if you already own a business competing with the target, which most first-time buyers do not. In the Computer Associates matter, the buyer cleared the target’s customer contracts and capped its discounts pre-closing. The Justice Department pleaded both a Section 1 violation and gun-jumping under Hart-Scott-Rodino. The $638,000 civil penalty in the consent judgment resolved the gun-jumping count, not the Sherman Act count, and that route exists only where a deal was reportable. The competitive impact statement put the rule in a line: “The pendency of a proposed merger does not excuse the merging parties of their obligations to compete independently.”

Merger notification is separate and, at this size, easy. Stated as of August 2026, the lowest Hart-Scott-Rodino size-of-transaction threshold is $133.9 million, effective February 17, 2026. Your deal is nowhere near it, and the thresholds move yearly, so confirm the current figure. The conduct rule applies whatever the numbers say.

Law: 15 U.S.C. 1; 15 U.S.C. 18a; United States v. Computer Associates International, Inc., Civil No. 01-02062 (GK) (D.D.C.), proposed final judgment and competitive impact statement, 67 Fed. Reg. 41472 (June 18, 2002); FTC revised notification thresholds effective February 17, 2026.

A covenant tells the seller what not to do. A consent right tells you what you now own. Keep the first one long and the second one short.

How do courts read the covenant and the material adverse effect condition?

Delaware courts read the ordinary course covenant against the target’s own history, and read the material adverse effect condition narrowly against the buyer. The covenant is the stronger tool. One limitation matters more than any case below: these are Delaware decisions, and your purchase agreement is probably governed by another state’s law.

The covenant can excuse a buyer from closing. In AB Stable, the seller of a hotel portfolio made drastic operational changes during the pandemic, without the buyer’s consent, under a covenant requiring operation “only in the ordinary course of business, consistent with past practice in all material respects” with no efforts qualifier. Chancery held the seller breached; the Delaware Supreme Court affirmed en banc. The measure was the company’s own past practice, not what a reasonable operator would have done in a crisis. The material adverse effect condition failed that buyer below, because the definition carved out natural disasters and calamities. The covenant did the work, and an efforts qualifier is what weakens it.

Compliance failures can breach it too. In Akorn, the target’s response to serious regulatory problems fell short of its promise to use “commercially reasonable efforts to carry on its business in all material respects in the ordinary course.” The court found the first Delaware material adverse effect, plus a covenant breach. The buyer could terminate.

Now the cases that cut against you. In Snow Phipps, a revolver draw and cost cuts breached nothing: the draw matched past practice, the cuts matched earlier downturns, and the covenant was qualified by an efforts standard. The buyer was ordered to close, having itself breached an obligation to use reasonable best efforts to get the financing. In Level 4 Yoga, closures mandated by government and directed by the buyer were ordinary course. That buyer was ordered to close too.

The material adverse effect condition is a weak lever. Under Delaware law the buyer carries the burden. The effect must be durationally significant, threatening earnings potential over years, not a bad quarter. Facts you knew before signing generally do not count, depending on the wording.

Law: AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC (Del. Dec. 8, 2021) (en banc), affirming (Del. Ch. 2020); Akorn v. Fresenius Kabi AG (Del. Ch. 2018), affirmed (Del. 2018); Snow Phipps Group v. KCAKE Acquisition (Del. Ch. 2021); Level 4 Yoga v. CorePower Yoga (Del. Ch. 2022); In re IBP Shareholders Litigation (Del. Ch. 2001); Hexion Specialty Chemicals v. Huntsman (Del. Ch. 2008).

The honest limitation. These decisions bind Delaware courts applying Delaware law. Your agreement is likely governed by the law of the state where the business sits. Delaware persuades; it does not control. Specific performance is discretionary, so plan on refusing to close as your remedy. And the outside date is a termination right the seller can invoke too.

The covenant is measured against the target’s own history. That is why the baseline you save at signing beats the case law.

What should I be looking at every week until funding?

Weekly reporting is the covenant that makes every other covenant enforceable. Require it in the purchase agreement, in a named format, on a named day. Sixty-day-old monthlies handed over in closing week tell you what already happened. Weekly reporting tells you while you can still act.

• Receivables and payables aging, side by side. Compare the buckets to the same reports at signing. Payables sliding from thirty days to sixty while receivables hold steady is cash being harvested out, and invisible on a profit and loss.
• Bank balances and weekly cash flow. Tie deposits to the revenue reported.
• Inventory or work in process against the signing level, and the payroll register, where changes in headcount, hours or pay show first.
• New contracts and price changes, plus payroll and sales tax filings, on time.

Then look for what the reports do not show: quiet departures, new liens and judgments, the state of the premises. Sellers often resist a reporting covenant, so get it into the signed agreement.

The business changed before closing. Do I reprice, hold back, extend, or walk?

Four options exist when you find a problem before funding, and each costs you something different. Choose deliberately, because closing with knowledge of a problem can forfeit the claim, and many purchase agreements say so expressly. Read the closing-with-knowledge language and the exclusive remedy clause before you choose.

A price change also moves the purchase price allocation you both report to the IRS. Law: 26 U.S.C. 1060; IRS Form 8594.

Extension carries a warning for an SBA-financed buyer. Program requirements apply as of the version in force when your loan receives its SBA number, not when you signed. Stated as of August 2026: SOP 50 10 8 governs loans numbered on or after June 1, 2025, and SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026, with a rewritten change-of-ownership appendix. Under SOP 50 10 8, a complete change of ownership requires equity injection of at least ten percent of total project costs, and a seller note counts toward it only on full standby, no principal and no interest, for the loan term, and then for no more than half the required injection. Confirm the current text with your lender. Nobody can promise you a credit decision or a funding date.

Rule: SBA SOP 50 10 8, effective June 1, 2025; SOP 50 10 8.1, applicable to loans numbered on or after October 1, 2026. Stated as of August 2026; confirm the version in force.

If part of the price is a seller note, a written right of offset against it is your most collectible remedy. A seller who left with cash is hard to reach.

Who bears the risk if the building burns down the week before funding?

Whoever your contract says bears it. Default rules vary by state and by asset type, so assign risk of loss expressly rather than leaving it to a material adverse effect argument. Write the clause: seller bears loss until funding, proceeds assigned to you or the price drops, and above a stated threshold you may terminate.

• Get current certificates for property, liability, auto, workers compensation and professional coverage, and again in closing week.
• Confirm the cancellation date the seller gave its broker falls after funding.
• Ask your lender what insurance it requires to fund, and in whose name. Endorsements take days you will not have.

What should I do in the next seven days?

Start with the covenant list, because it is the only lever you can still build before signing. The work below fits inside a week, and each item removes a specific way the interim window can hurt you. Do them in order, and put the answers in writing.

• Draft the covenant list from this target’s facts, with thresholds from its trailing twelve months, not round numbers off a form.
• Add the weekly reporting covenant. Name the reports, the format and the day.
• Confirm the agreement has a bring-down condition, a covenant compliance condition, an outside date and a financing condition tied to your actual loan. Without that last one, a loan that does not fund leaves your deposit exposed and the seller claiming breach.
• Save the signing-date aging reports, bank statements and inventory counts in one folder. Without that baseline, “consistent with past practice” is an argument, not a measurement.
• Ask your lender, in writing, how an extension or a price change affects your file, and what updated financials it needs.
• Diary the outside date and a date two weeks before it. Extensions negotiated early go better than extensions negotiated the night before.

You will not control the business until your lender funds. You can arrive at that hour knowing what changed, holding the record, and having decided what to do.