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SBA rules encoded
Source: SBA SOP 50 10 8.1 (with Technical Updates), effective Oct 1, 2026; SBA Information Notice 5000-882227 (Sep 25, 2026), SOP 50 10 8.1 with Technical Policy Updates; applies to applications received by SBA on or after Oct 1, 2026 (supersedes the Aug 14, 2026 notice 5000-880695) .
- Equity injection: at least 10% of total project cost (Owner Buyout: 10% of the purchase price) for every change-of-ownership type; for an Initial Acquisition it cannot be reduced. Limited sources (seller debt on full standby, other standby debt, non-controlling minority equity) may supply no more than half, so at least 5% of project cost must be the buyer's unlimited-source cash (App. 15, C.2.a).
- Seller notes: count as equity only if subordinated and on full standby (no principal or interest) for the 7(a) term. Notes that get paid count as debt; interest-only debt not on standby is underwritten on a 10-year amortization (App. 15, C.2.a and C.2.b.ii.h). Partial standby (e.g. 24 months) never counts as equity; we treat it as debt.
- DSCR: EBITDA divided by combined post-transaction debt service, on the last fiscal year or two-year average; projections can't be used to pass (App. 15, C.2.b.ii.e-g). Minimums: Initial Acquisition 1.25x, Business Expansion 1.15x, Owner Buyout 1.25x, ESOP or Cooperative 1.25x (App. 15, C.2.b.ii.c).
- Adjustments: owner pay, seller discretionary expenses and non-recurring items may be adjusted only with support; unsupported adjustments are ineligible, so undocumented add-backs get 0%. One-time income (ERC, PPP, insurance) is subtracted, as are below-market related-party pay or rent and "one-time" items that recur (App. 15, C.2.b.ii.f; C.1.b).
- Loan terms: change-of-ownership loans amortize over no more than 10 years excluding real estate (App. 15, B.1); max variable rate for loans over $350,000 is Prime + 3.00% (Section B, Ch. 1; WSJ Prime Rate 7.00% (effective Sep 17, 2026; unchanged as of Oct 19, 2026)); max Standard 7(a) loan $5,000,000.
- Fees: FY2027 upfront guaranty fee 2% / 3% / 3.5% + 3.75% of the guaranteed portion by loan size; 0% for loans of $700,000 or less to manufacturers (NAICS 31-33), listed food-supply-chain NAICS and rural businesses; 85% guaranty up to $150,000, 75% above (SBA Information Notice 5000-881797, FY2027 7(a) fees (effective Oct 1, 2026), and SOP 50 10 8.1 Section A, Ch. 4, Para. C).
- Due diligence: independent business valuation from a Qualified Source above $350,000; Quality of Earnings at a purchase price of $3M or more for Initial Acquisitions and Business Expansions, and the lender must use the QoE earnings (App. 15, A.3 and C.1.b). Acquisition debt (7(a) plus seller debt not on full standby) may not exceed the business valuation; any excess must be equity (App. 15, A.4 and C.1.a).
- Deal terms: earnouts prohibited; seller may stay only as a consultant up to 24 months (App. 15, A.8-A.9).
Add-back treatment (Lender Preview convention)
| Add-back | Kept if documented | Kept if not | Why |
|---|---|---|---|
| Depreciation and amortization | 100% | 100% | Non-cash; part of EBITDA by definition (App. 15, C.2.b.ii.e). |
| Interest on the seller's debt (paid off at closing) | 100% | 100% | Part of EBITDA; the new debt service is counted separately. |
| Owner's personal expenses run through the business | 100% | 0% | Seller discretionary expenses are a listed adjustment but need support (App. 15, C.2.b.ii.f). |
| One-time / non-recurring expenses | 100% | 0% | Allowed only with support showing it will not recur (App. 15, C.2.b.ii.f). |
| Non-working family payroll | 100% | 0% | Ownership-related compensation adjustment; must be supported (App. 15, C.2.b.ii.f). |
| Savings realized through the transaction (e.g. signed lower rent) | 50% | 0% | "Prudent adjustments" for savings realized through the transaction need lender justification (App. 15, C.2.b.ii.f); haircut 50% even when documented. |
| Projected growth, new revenue or future cost cuts | 0% | 0% | Lenders may not rely on projections to meet DSC (App. 15, C.2.b.ii.g). |
| Other add-back | 50% | 0% | Unclassified adjustments are haircut; undocumented ones are ineligible (App. 15, C.2.b.ii.f). |
Market salary benchmark (incl. payroll taxes): $60K under $0.5M revenue, $75K to $1M, $90K to $2M, $110K to $5M, $130K to $10M, $150K above. You can override it.
Verdict
Unlikely: DSCR below the SBA minimum for the deal type (a hard requirement), or a blocking issue: negative cash flow, loan over $5M, earnout, seller staying over 24 months, any equity shortfall on an Initial Acquisition, or debt above the valuation. Borderline: DSCR from the minimum up to the minimum + 0.15x (1.25x to 1.40x for an Initial Acquisition), or a major flag. Likely: DSCR of the minimum + 0.15x or more with no blocking or major issue. The bands above the minimum are our convention, not SBA's.
Max financeable price: the highest price at which DSCR stays at or above the minimum, the loan stays under $5M, and your cash (plus capped standby sources) still meets the 10% rule, holding your cash and seller note as entered.
Checklist items (shown, not scored)
- 100% of direct and indirect owners and all SBA-required guarantors are U.S. Citizens or U.S. Nationals with their principal residence in the U.S. (no Ineligible Persons, 6-month lookback). (SOP 50 10 8.1 Section A, Ch. 1, Para. F)
- Every owner of 20% or more gives an unlimited personal guaranty. (Section A, Ch. 5, Para. A; App. 15, Personal Guaranties)
- Personal resources / credit elsewhere: the lender documents why credit is not available elsewhere on reasonable terms, considering your liquidity. (Section A, Ch. 1, Para. H)
- Your personal finances pass a global cash flow test at 1:1, and the salary you will take covers your living costs. (App. 15, C.2.b.ii.f (ownership compensation; global cash flow at 1:1))
- At least half of the 10% injection comes from unlimited sources: your own unborrowed cash, gifts, a personal loan repaid from outside the business, unconditional grants, or verified prepaid expenses. (App. 15, C.2.a)
- Any seller note counted as equity is on full standby (no principal or interest) for the whole 7(a) term, on SBA Form 155. (App. 15, C.2.a)
- No earnout; the seller leaves except as a consultant for up to 24 months. (App. 15, A.8 and A.9)
- The business meets SBA size standards and is not an ineligible type (e.g. passive real estate, lending, speculation). (Section A, Ch. 1, Paras. D and E)
- Lender orders an independent business valuation (Qualified Source required if price > $350,000) and a QoE if price >= $3M; acquisition debt may not exceed the valuation and the price above it must be equity. (App. 15, A.4, C.1.a and C.1.b)
- Three most recent fiscal years plus interims and IRS tax transcripts verify the seller's numbers. (App. 15, A.7 and C.2.b.ii.a-b)
- No owner or guarantor is incarcerated, under felony indictment, or charged with a financial-misconduct crime; no delinquent federal debt or prior loss to the government (CAIVRS); lender reviews personal credit reports. (Section A, Ch. 1, Para. E; Section B, Ch. 1, Para. C)
- If the loan is not fully secured, the lender takes available equity in personal real estate of 20%+ owners. (App. 15, C.3)
Lender data
U.S. Small Business Administration, 7(a) FOIA loan data, file "FOIA - 7(a) (FY2020-Present)" (data.sba.gov), file as of 2026-06-30. Approval FY2024 to FY2026 (Oct 1, 2023 to Jun 30, 2026); cancelled loans excluded. We keep only lender-level counts by NAICS sector and project state, no borrower data.
Not a loan approval. Lender Preview gives an estimate for education only. It is not a loan approval, a commitment to lend, or lending, legal, tax, accounting or investment advice, and it is not an audit, attestation or valuation. Every lender applies its own credit policy. Lender Preview is not affiliated with, endorsed by, or acting for the U.S. Small Business Administration or any lender, and it takes no fees or referral payments from lenders.