How SBA financing shapes your sale

An SBA-backed acquisition loan is underwritten against the business, not the buyer's personal wealth. The lender wants to know whether the company's historical adjusted earnings can service the new debt, pay the buyer a reasonable living, and still leave a cushion. That adjusted earnings figure — Seller's Discretionary Earnings — comes straight out of your tax returns and financial statements, recast for the ways a private owner runs the business. We walk through that recasting in detail on how buyers read a P&L.

Lenders also look at the trailing history, usually three years, sometimes more. A single strong year sitting on top of two weak ones does not underwrite the same way as three years of steady growth, even if the totals are similar.

A lender's underwriter cannot finance earnings they cannot verify. Cash paid outside the books, personal expenses buried in the general ledger, and informal arrangements with family or vendors all have to be explained, and in a loan file, explained means documented. Where they cannot be documented, they are usually left out of the number the bank will lend against, which lowers the loan amount regardless of what the business actually earns.

The order to fix this in is covered on preparing your business for sale. The short version is that the earlier you separate personal spending from business spending, the more of your real earnings will be financeable when a buyer applies for a loan.

Many SBA-financed deals in our range include a seller note for part of the price, often held on full standby for a period set by the lender, meaning the buyer makes no payments on it until the bank loan is further along. This is not a sign of a weak deal. Lenders often view a seller note as evidence that the person who knows the business best is willing to stand behind it, and it can be the difference between a loan getting approved and not.

It also means part of your proceeds is not cash at closing. That is a conversation worth having early with your CPA, since it affects both your tax picture and your planning for what comes after the sale. See selling a business before retirement for how that timing question fits into a broader plan.

Some businesses are difficult to finance no matter how well they are presented. Under roughly $100,000 in Seller's Discretionary Earnings, the loan amount a lender will support is often too small to interest an SBA lender relative to their cost of underwriting the file. Less than five years of documented operating history makes underwriters uncomfortable, since there is less of a track record to lend against. And earnings that rely heavily on cash the business cannot substantiate simply do not appear on a loan application, no matter how real they are to you.

None of these facts make a business worthless. They do mean the buyer pool narrows to cash buyers, which is a much smaller and more selective group. We would rather tell an owner this before a listing goes out than let a buyer's declined loan application deliver the news six months in.

Financing is not a footnote to the buyer search, it is most of the search. A business priced and documented in a way that a bank will finance is reachable by the full range of qualified individual buyers, search-fund buyers and small strategic acquirers active in the Texas buyer market. A business that only a cash buyer can purchase is reachable by a much smaller slice of that same market, and smaller buyer pools tend to produce lower prices and slower sales, not higher ones.

The price a buyer offers only matters if a lender will fund it. Everything about preparation exists to make that funding more likely.

We are not lenders, and we do not set loan terms, rates or eligibility standards — those come from the bank a buyer chooses. What we do is help you understand, well before you go to market, how your business is likely to look to that bank, which is a large part of how a sale actually proceeds in Texas.