@kumarchandan6d69·5dYou want an SBA 7(a) loan to buy your first business. In each of the last two fiscal years, after paying a manager to run it and keeping the equipment working, it had $300,000 left to pay debt. The new loan would cost $250,000 a year, and there's no other debt.
Does it pass the SBA's debt service coverage test? Vote, then open the comments for the answer.
Not legal, tax or lending advice.
The answer is in the reply below. Vote first, then open it for the math.
@kumarchandan6d69·5dBuying a business is a long road, and the questions change at every stage. Where are you right now?
Vote, then reply with the industry you're looking at. Buyers looking at the same kind of business can compare notes on brokers, lenders and listings.
Wherever you are, run the free Deal Screen on the next listing you like, before you spend money on diligence.
Educational tools, not legal, tax or lending advice. Not affiliated with the U.S. Small Business Administration.
@kumarchandan6d69·5dA seller's P&L says what the business earned. A proof of cash checks whether that money reached the bank.
How it works
Get the statements for every business bank account, plus the card-processor statements, straight from the bank or downloaded while you watch.
Total each month's deposits, then take out what isn't sales: transfers between the business's own accounts, loans and money the owner put in.
Compare what's left with the revenue on the P&L for the same month, and each year's total with the gross receipts on the tax return.
Check each month's closing balance against the statement. A break means a missing account, a missing statement or a figure entered wrongly.
When the deposits come up short, the earnings you're paying for may not be real. Find out why before you pay for the rest of diligence.
When the SBA requires it: at a purchase price of $3 million or more, the proof of cash must be inside the Quality of Earnings report (SOP 50 10 8.1, Appendix 15). Below that, it's still a quick check on the seller's numbers.
The Diligence Room includes a Proof of Cash workbook (up to 36 months, every gap flagged, with a worked example), a 126-item diligence tracker, a letter of intent template and a 21-page manual.
Educational tools, not legal, tax or lending advice. Rules change: confirm every rule with your lender.
@kumarchandan6d69·5dBefore you pay lawyers, accountants or a Quality of Earnings firm, run the test a lender will run.
The Deal Check workbook takes the asking price, the seller's earnings and your cash, and returns debt service coverage against the SBA's 1.25× minimum, the equity test, and the highest price the cash flow supports. The Deal Screen guide explains every number, and the eight rules that end deals late.
It's free.
Educational tools, not legal, tax or lending advice. Not affiliated with the U.S. Small Business Administration.
@kumarchandan6d69·5dFor an Initial Acquisition, the SBA requires you to inject equity of at least 10% of total project cost, and the requirement cannot be reduced or eliminated. Three details decide whether your cash is enough.
The base is the project, not the price. Total project cost means every cost required to become operational, whatever the source of the funds. Working capital, inventory, closing costs and a financed guaranty fee are all in it.
Seller money counts only on full standby, and only up to half. A seller note counts only if it takes no payments of principal or interest for the whole term of the SBA loan. Standby debt, seller debt on full standby and minority investors without control (under 20%) together may supply no more than half of the injection.
Some spending is not equity. Fees for education, advisory services or an agent don't count.
Few sellers agree to wait the whole term of the loan without a payment. Plan on cash.
The free Deal Screen has the equity test built in: enter your cash and it tells you whether you clear it. Get The Deal Screen
SBA SOP 50 10 8.1, effective 1 October 2026, Appendix 15, C. Rules change: confirm every rule with your lender. Not legal or lending advice.
@kumarchandan6d69·5dAcross the 2,117 businesses that sold in the second quarter of 2026, the average price was 2.7 times the seller's discretionary earnings (SDE). A lender asks a different question: once someone is paid to run the business and the equipment is kept working, is there enough cash left to pay the loan, with a 25% margin?
The same test at two sizes
$150,000 of SDE. After a $100,000 manager's salary and $10,000 of maintenance capital spending, $40,000 is left. That supports an SBA loan of about $201,790. At 2.7 times SDE the business would sell for about $405,000 and need a loan of about $364,500.
$1,000,000 of SDE. After the same salary and $60,000 of capital spending, $840,000 is left. That supports a loan of about $4,237,585: more than four times its SDE.
The average multiple is generous at one end of the market and unfinanceable at the other. The free Deal Screen tells you which end a listing sits at, in two minutes.
At Prime 7.00% plus 3.00% (October 2026), 10 years, monthly payments, 1.25× coverage, no seller note, before the guaranty fee. The salary and capital spending are illustrations. Market figures: BizBuySell Insight Report, Q2 2026. Not lending advice.
