Transcript
Personal guarantee from every owner of 20% or more, business valuation and lender underwriting run on historical cash flow, typical LOI to funding timeline, 60 to 120 days in broker and lender guides, equity injection, SOP 5010-8, effective June 1, 2025, minimum 10% of total project cost for a complete change of ownership. A seller note counts toward that 10%, only if it is on full standby, no principal or interest payments for the entire life of the SBA loan.
Standby seller debt plus outside investor money under 20% stakes together can cover at most half of the injection. That means at least 5% must be the buyer's own cash. First time acquisitions, new, SOP 5010-8.1, October 1, 2026. First time acquisitions are distinct strictest category, 1.25 times DSCR required, measured on the last fiscal year or two-year average, projections cannot be used. The 10% down cannot be reduced or waived.
An independent business valuation is required on every change of ownership and total debt cannot exceed a praised value. A lender ordered quality of earnings is required at a purchase price of $3 million or more.
Above this buy box though, lenders may still order one. Full underwriting, even for loans of $350,000 or less, owners and guarantors must be US citizens or nationals. The absentee question 7A eligibility excludes passive businesses, 13 CFR120.110C, and SBA lender guidance warns that contracting out all or substantially all operations to a management company can make a business passive and ineligible.
There's no rule that the owner must personally perform the trade work, and manager-run businesses are financed routinely. The buyer must be the active owner-manager of managers, finances and strategy, and should never describe the plan as absentee or passive to a lender. The semi-absentee target owner 10 to 20 hours a week managing a GM is a lender conversation to have at pre-qualification in writing for each target type. Laundromats and route businesses draw the most passive business scrutiny.
Seller financing asks, but do not build the thesis on it. Seller financing is common, but not dominant, and its share shrank in 2026. IBBA Q1 2025 puts seller financing at roughly 9% of deal value under 500k, about 13% at 500k to 1 million, and about 17% at 1 million to 2 million, with a large majority of the price paid in cash at closing. By Q2 2026, seller financing was under 10% of most deals, and cash at close ran 83 to 92%. Placer financing is a share of deal value, IBBA Q1 2025.
The practical read, expect to ask for 10 to 20% or a 5% standby note to satisfy the SBA equity rules. Expect many sellers to counter at 0 to 10%. A biz-buy sell analysis of closed deals points the same way. Ask for 5 to 10% plus a 5% standby note where the SBA equity rules needed and treat anything more as a bonus. Red flags and listings on any platform add backs over 30 to 35% of SDE or add backs with no receipts or payroll proof. One time costs that recur every year.
The owner's spouse or family working unpaid, below market rent from a seller owned building, deferred maintenance or an aged fleet not reflected in the P&L, financials that do not reconcile three ways P&L versus business tax returns versus bank deposits, proof of cash, off books cash the tax return doesn't show, counts as $0 for valuation and for the lender, concentration, any customer over 20%, serious or over 30%, walk or price it with a hold back.
Any single traffic or revenue channel over 50%, Google, Amazon, one referral source, a top employee who is the business, absentee or semi absentee in the headline but no manager on payroll, owner hours of 10 per week with no GM or SDE quoted before deducting, a manager's salary, price set on annualized recent growth, last month times 12, annual contract MRR about to renew, a declining trailing 12 trend hidden by a strong last quarter, seasonality not disclosed, seller behavior refuses tax returns or transcripts pre-LOI without an NDA stage explanation, pressures for a fast LOI with no exclusivity or diligence period, won't take a seller call, won't offer any standby note or transition period, also a lease under three years remaining with no option and licenses that don't transfer, trades, childcare and pet boarding permits vary by Georgia County and city so verify, financing bait, SBA pre-qualified loan with no lender letter behind it and pressure to sign a fast LOI with no exclusivity or diligence period.
For any SBA pre-qualified claim, ask which lender, when and on what financials.