THE BARATELLI INSTITUTE · Mentoring at Scale
FOR BUSINESS BUYERS, SELLERS, BROKERS, AND THE LENDERS PACKAGING THE DEAL

The SBA underwriting math your lender is running. Run it before you submit.

Every SBA 7(a) and 504 deal is decided by five numbers: DSCR, global DSCR, LTV, collateral coverage, and equity injection. Banks decline more than half of submitted packages because the borrower didn't know which numbers needed to clear which thresholds. This tool runs all five — and tells you what to fix before you waste a packaging fee.

1.25x
DSCR minimum
10%
Min equity injection (acq)
$10M
7(a) max
25-yr
Real estate amortization
YOUR PACKAGE
1
The deal
2
Sources & uses
3
Cash flow
4
Borrower profile
5
Underwriting verdict
STAGE 1 OF 5

The deal

Defaults model a $2.5M business acquisition with $500K real estate component, $400K buyer equity, and $300K seller note — typical lower-middle-market SBA 7(a) profile.

Drives the loan program (7(a) vs 504), the term length, and the underwriting hurdles. Acquisitions are the most common SBA use; real estate often goes to 504 for the better rate.
SBA 7(a) is the workhorse — broad use of funds, up to $10M, prime + 3% typical. SBA 504 is real estate / heavy equipment with a CDC second lien — better rate (sub-7%), but only for fixed assets, max $5.5M SBA portion. Express is faster but smaller ($500K).
For acquisition: purchase price + working capital + closing costs. For expansion: total capex + WC. For real estate: purchase price + improvements + closing.
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Real estate inside an SBA 7(a) gets a 25-year amortization (the rest of the loan is 10 years). For 504, real estate IS the loan.
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Lender's risk weighting varies by industry. SBA size standards (revenue or employee-based) also vary by NAICS — verify your business qualifies. Restaurants and franchises require additional scrutiny.
For acquisitions, the TARGET business years (not buyer experience). Banks want 3+ years of operating history; sub-3-year businesses are "startup-like" and require additional projections + collateral. New ventures require special handling.
Why most SBA packages get declined. The bank doesn't decline because the borrower is a bad person. They decline because one of five numbers misses the threshold and the bank's investor (the SBA itself, ultimately) won't take the risk. The five numbers are DSCR, global DSCR, LTV, collateral, and equity injection. Get all five right and the package goes through. Miss any one badly and it doesn't.
OBBBA 2025: SBA cumulative cap doubled to $10M. The One Big Beautiful Bill Act raised the lifetime aggregate of all SBA-guaranteed loans a single borrower can carry — across 7(a), 504, Express, and Microloan combined — from $5M to $10M. Per-loan caps are unchanged (7(a) still $5M per loan, 504 still $5.5M per project). This tool models a single loan against the per-loan cap; if you already carry SBA debt from a prior acquisition, sum it with the proposed loan and verify the total is ≤ $10M before submission. Full treatment in the Business Buyer's Guide — see "OBBBA 2025: SBA Cumulative Loan Cap Doubles to $10M" in Appendix B.
STAGE 2 OF 5

Sources & uses

SBA requires a minimum equity injection (typically 10% for acquisitions, often higher in practice). The "stack" — SBA loan + buyer equity + seller note + other — must equal total project cost.

SBA SOP 50 10 6 minimum is 10% of total project cost for change-of-ownership. In practice, banks want 15-25% to feel comfortable. Seller notes on standby (no payments for 24 months) can count toward the equity injection — see below.
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A full-standby seller note (no payments for at least 24 months) counts toward SBA's 10% minimum equity injection. A non-standby seller note does NOT — it counts as debt and pressures DSCR.
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A regular seller note — paying interest+principal alongside the SBA loan — does NOT count as equity injection. It also adds to the debt service the business must cover. Typical structure: 5-7 year amortization, prime+1 to 8% rate, behind SBA in priority.
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Total project cost less equity less other sources. Auto-computes if you leave at default. 7(a) max is $10M; 504 max is $5.5M SBA portion (with bank first lien up to total project cost).
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7(a) variable: Prime + 2.25-3% typical (SBA cap is Prime + 3% under $50K, Prime + 4.75% above). 504: ~6-7% fixed. Express: Prime + 4.5-6.5%. Use current Prime ~7.5% (May 2026) plus the spread.
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SBA 7(a) max term: 10 years working capital / equipment, 25 years real estate. 504: 25 years real estate. Express: 7-10 years. Longer term = lower monthly payment = better DSCR but more total interest.
The seller-note standby trick. If buyer cash is short of SBA's 10% equity minimum, a full-standby seller note (no payments for 24 months) bridges the gap. Sellers often agree because they want the deal to close. The bank is happy because the standby note doesn't pressure DSCR for 2 years (by which time the business should be running). This single mechanic saves more deals than any other — most buyers don't know it exists.
SELLER-NOTE STRUCTURE — THE THREE OPTIONS COMPARED
Structure SBA equity treatment Buyer cash needed Seller perspective
Full standby (no payments 24+ mo) Counts as equity Lowest Seller waits 24 months for any cash. Highest risk; usually with rate premium (8-10%).
Partial standby (e.g., 12 mo no pay then amort) Partial credit Low-mid Compromise. Seller gets cash flow back at month 13; buyer gets some equity-injection credit. Lender determines exact weight.
Regular amortizing (concurrent with SBA) Counts as DEBT Highest Seller starts collecting immediately. Pressures DSCR. Buyer needs more cash to hit 10% equity.
The negotiation script: Most buyers default to "regular amortizing" because they don't know to ask. Most sellers default to "full standby" because their broker tells them it's required. The middle path — partial standby (12 months no pay, then 84-month amortization at 8%) — gives the buyer ~50-70% equity-injection credit AND gives the seller cash flow starting year 2. Highest deal-close probability of the three structures.
STAGE 3 OF 5

Business cash flow available for debt service

SBA underwriting for owner-operator acquisitions uses Seller's Discretionary Earnings (SDE) — the income available to one full-time working owner. SDE = net income + interest + tax + D&A + ONE owner's salary + owner perks + non-recurring. Banks then subtract replacement compensation for the new owner-operator to get CADS. (Larger deals — typically $5M+ — use EBITDA-based DSCR with explicit replacement comp instead.)

For SBA acquisitions under ~$5M: the standard cash-flow proxy. SDE = pretax net income + interest + D&A + the seller's salary + the seller's perks (vehicle, health, travel, family wages above market) + one-time / non-recurring items. If you only have EBITDA, add the owner's full compensation back to get to SDE. For larger deals, this field can be EBITDA — in which case set "owner addbacks" to zero.
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If your starting number is true SDE (already includes owner comp + perks), this is just one-time / non-recurring items the bank will accept (a single big legal fee, the COVID reserve, a one-time write-off). If your starting number is EBITDA, this should include the full owner compensation + perks. Banks scrutinize aggressively — anything over 15-20% of starting cash flow needs documented justification.
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Routine capex required to maintain the business — equipment replacement, vehicle replacement, computers, leasehold improvements. Banks subtract this from EBITDA before computing CADS. Zero for pure-services businesses; 3-5% of revenue for distribution/light industrial; 7%+ for capex-heavy businesses.
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Reasonable salary for the buyer to replace the owner-operator. Banks require this to be deducted from CADS (the buyer needs to live on something). Typical: $80-150K for owner-operator of $500K-1M EBITDA business; $150-250K for $1-3M EBITDA. If buyer has another income source, less needed.
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If acquiring a business with existing equipment loans, vehicle loans, or other debt that's not being refinanced, those payments reduce CADS. Set 0 if the SBA loan refinances all existing debt.
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Banks want stable or growing revenue over the past 3 years. Declining revenue (more than 5% per year) is a major flag — the bank may require revenue stabilization before approving. Up means more comfortable; flat is OK; down requires explanation.
STAGE 4 OF 5

Borrower profile (personal underwriting)

SBA underwriting is BOTH business and personal. The bank computes Global DSCR (business CADS + personal income vs. business debt + personal debt). They also check credit, experience, and collateral for the personal guarantee.

Spouse income, investment income, rental income, etc. Adds to global cash flow. If buyer is leaving a $200K corporate job to buy this business, that income disappears at close — DON'T include it.
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Mortgage P&I + property tax + HOA, auto loans, student loans, credit card minimums. Banks pull personal credit and verify. Excessive personal debt-to-income (DTI > 45%) hurts global DSCR.
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SBA lenders typically require 680+ for 7(a); 700+ preferred. Below 660, options narrow significantly. Scores below 620 are typically declined regardless of cash flow. Express loans are more flexible (650+).
Banks heavily weight buyer's experience in the target industry. 5+ years preferred for owner-operator acquisitions; transferable management experience can substitute. First-time business buyer with no industry experience is a major red flag.
SBA requires the bank to take all available collateral up to the loan amount. Personal real estate equity (home equity above existing mortgage) is the most-pledged asset. Banks will discount real estate to 75-80% of FMV when crediting collateral coverage.
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FMV of business assets the bank can foreclose on: equipment, inventory, AR. For services businesses with little tangible, this is small (banks discount goodwill heavily — often to zero). For asset-heavy businesses (distribution, manufacturing), can be substantial.
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The personal guarantee that scares first-time buyers. SBA requires unlimited personal guarantee from any owner with 20%+ equity stake. That means if the business fails, the bank can pursue the buyer's personal assets — home (after homestead exemption), savings, future wages. Spouse may also need to sign. This is real and not negotiable. Most first-time business buyers don't fully internalize this until closing day.
STAGE 5 OF 5 · UNDERWRITING VERDICT

SBA underwriting verdict

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Business DSCR
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Global DSCR
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Collateral coverage
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Sources & uses

Source
Amount
% of total

Cash available for debt service (CADS)

Five-test underwriting scoreboard

SBA banks decline most packages because one of these fails. Here is your scoreboard.

Test
Threshold
Actual
Result

Loan economics

Recommendations

OBBBA 2025 · CUMULATIVE CAP RUNWAY CHECK
Cumulative SBA exposure: total across all your prior + current SBA loans
The One Big Beautiful Bill Act raised the lifetime aggregate of SBA-guaranteed debt one borrower can carry from $5M to $10M, effective 2025. Per-loan caps did not change — 7(a) is still $5M per loan, 504 still $5.5M per project — but a serial acquirer or buyer with an existing SBA loan now has meaningfully more runway. Before signing: sum the proposed loan above with any outstanding SBA-guaranteed balances on your personal/business credit, confirm the total is ≤ $10M, and disclose existing SBA exposure on the lender's borrower questionnaire. Full treatment of the cap change and roll-up implications in the Business Buyer's Guide — Appendix B, "OBBBA 2025: SBA Cumulative Loan Cap Doubles to $10M."
THE BUYER'S GUIDE THAT GOES WITH THIS TOOL
Business Buyer's Guide · Solo M&A Banker
Every SBA borrower is a business buyer. The Business Buyer's Guide is the playbook for the whole acquisition — search and target identification, LOI negotiation, QofE diligence, deal-structure decision (paired with the Asset vs. Stock Sale tool), working capital peg-setting, the 100-day post-close operating plan. SBA underwriting is one chapter of seven. Subscribe to the library →
RELATED TOOLS
Asset vs. Stock Sale (§338(h)(10)) · Working Capital Peg · Deal Multiples
The Asset vs. Stock Sale tool models the buyer-side step-up benefit and the §338(h)(10) gross-up negotiation — directly affects the cash basis for the SBA loan. The Working Capital Peg tool sizes the WC component of total project cost. Deal Multiples sanity-checks whether you're paying a price the bank will lend against.
BUSINESS BUYER'S GUIDE

SBA financing is one chapter. Get the full Business Buyer's Guide.

Search-and-targeting · LOI mechanics · QofE diligence · deal structure (asset vs. stock, §338(h)(10)) · working capital peg · escrow & indemnification · transition planning · the first-100-days operating playbook · the SBA underwriting walkthrough every buyer needs before submitting.

FOR BUSINESS BROKERS
Send your buyers here. They come back qualified.
Every buyer in your pipeline has to clear five SBA tests before a lender will fund. Buyers who run this tool first arrive at the lender with the structure pre-fixed (right equity injection, right standby seller note, right amortization, right industry comps). That moves your deals to close faster — and makes you look like the broker who sets buyers up to win. Pair with the Business Buyer's Guide as your standard buyer-onboarding handout. Talk to the Institute about a brokerage partnership →
SBA underwriting standards reflect typical bank practice for 7(a) and 504 programs as of mid-2026 SOP 50 10. Specific banks vary materially in risk appetite — the same package may be approved at one PLP lender and declined at another. The model uses standard CADS construction (EBITDA + addbacks − replacement capex − owner comp) but does not model: SBA size standards by NAICS (verify your business qualifies), franchise-list eligibility, prior bankruptcy/criminal history disqualifications, prior government loan history, special programs (Veterans Advantage, CAPLines, Export-Import), or SBA guaranty fee tiers (currently 0% under $1M, 1.7%-3.75% above). Engage an SBA-experienced banker or broker for any actual transaction. This is not financing advice.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator is one chapter of The Business Buyer's Guide.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases. Read the chapter and you can defend your number to a board, a buyer, an examiner, or a counterparty.
The methodology behind this calculator is in Ch 7 SBA-7(a) Underwriting of the reference guide.
See the Guide → Browse all 22 guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, appraisal, lending, insurance, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

Estimates based on your inputs. All results are estimates derived from the data and assumptions you provide. Tax law, accounting standards, regulations, market conditions, and the specific facts of your situation can materially change the answer. The Baratelli Institute, its affiliates, and any co-branding professional make no warranty of accuracy, completeness, currency, or fitness for any particular purpose, and disclaim all liability for decisions made in reliance on the output.

Consult your own qualified professionals. Before acting on anything calculated here, consult your own attorney, CPA, financial advisor, appraiser, lender, or other qualified professional licensed in your jurisdiction who has reviewed your specific facts and applicable current law. The Baratelli Institute is a publisher of practitioner reference material. It is not a registered investment adviser, broker-dealer, law firm, accounting firm, appraisal firm, or lender.

Co-branded versions: If a professional advisor's name and contact information appear on this tool, that advisor has elected to make the tool available to clients as a courtesy. Inclusion of an advisor's name does not constitute the advisor's endorsement of any specific result, nor does it transfer professional responsibility for the underlying methodology to that advisor. The disclaimer above applies regardless of co-branding.