How lenders look at a deal
An acquisition lender is underwriting two things: the business you are buying and you as the operator. The business needs enough reliable cash flow to cover the new debt with room to spare. You need relevant experience, some cash in the deal and a credible transition plan.
- Debt service coverage ratio (DSCR): cash flow available for debt service divided by annual loan payments. Many lenders look for roughly 1.25x or more, but requirements vary.
- Equity injection: buyer cash, sometimes combined with a seller note that is on standby.
- Collateral and personal guarantees: common, especially on SBA-guaranteed loans.
Sources and uses: build it first
Before you call a lender, write a simple table. Uses: purchase price, closing costs, working capital, any real estate or equipment. Sources: senior loan, seller note, your cash, any investor equity. If the two columns don't match, the deal isn't financeable yet.
Don't forget working capital. A common reason new owners struggle is closing with no cash cushion for payroll, inventory and receivables in the first 90 days.
What a $750,000 loan can cost each month
At an illustrative 10% rate over 10 years, a $750,000 loan is roughly $9,900 per month, or about $119,000 per year in debt service. At a 1.25x coverage target, the business would need about $149,000 of cash flow available for debt service. Use the calculator below to test your own terms.
Run the numbers
Net income + interest + depreciation/amortization + documented add-backs.
Debt service coverage (DSCR)
2.64x
Meets your 1.25x target.
Debt / EBITDA
2.17x
New annual payments
$77,639
Max new loan at 1.25x
$1,313,781
Each lender calculates cash flow and coverage its own way. Educational estimate, not a credit decision.
Estimates only. Results vary. No guarantee of approval, rates or savings.
Estimates only. Results vary. No guarantee of approval, rates or savings.
Talk with a financing specialistCommon questions
How much down payment do I need to buy a business?
It depends on the lender, the loan program and the deal. Buyer equity of around 10% is common on SBA 7(a) acquisitions, while conventional lenders often ask for more. A provider will confirm what applies to your deal.
Can a seller note count toward my equity?
Sometimes. Some programs allow part of the equity to come from a seller note if it is on full standby for a period. Rules change, so confirm with the lender.
Does Profit Theory lend money?
No. We help you prepare and, with your consent, introduce you to selected lenders who make all credit decisions.