Transcript
An LOI, a letter of intent, is your written offer before the final contract, price, structure, timeline, and your conditions, like 45 days to check the numbers. It is mostly not binding, but it locks the serious terms and gives you exclusive time to check the deal. Due diligence is that checking phase, taxes, bank deposits, customers, leases, licenses, all verified before you are committed.
An APA, an Asset Purchase Agreement, is the final contract that actually buys the business. Now the trust but verify words. Adbacks are expenses the seller adds back to profit to make earnings look bigger. Some are fair, like the owner's salary. Some are games, like one-time costs that happen every year. Every adback needs proof.
Proof of cash means making three sets of numbers tell the same story. The profit and loss statement, the tax return, and the bank deposits. Cash the tax return does not show counts as zero for your price and for the lender. A quality of earnings check, QoE, is a professional version of the same idea. A CPA rebuilds the earnings from source documents instead of trusting the seller's spreadsheet.
TTM means trailing 12 months, the most recent year of results, not the last calendar year. Now the bank words, DSCR, the debt service coverage ratio, is how many times the business's cash flow covers the yearly loan payments. 350,000 of cash flow against 200,000 of payments is 1.75 times. The SBA floor for first-time buyers is 1.25 times and this plan targets 1.35 or better for cushion. Equity injection is your down payment.
In SBA language, at least 10% of the total project cost and since October 1st, 2026, it cannot be waived for first-time buyers. SOP 5010 8.1 is the SBA's current rulebook for these loans. When an older online guide quotes friendlier rules, it is reading an older rulebook.
Underwriting is the lender's yes or no process. The bank rebuilds the deal from tax returns and bank statements, using past numbers only. A seller note means the seller lends you part of the price and you pay them over time. A standby note means the seller waits in line behind the bank, with no payments until the bank allows.
A full standby note can count toward your 10% down, though at least 5% must still be your own cash. Proof of funds is proof you have the money, a bank statement or lender letter. Brokers ask for it before they release the CIM escrow, means a neutral third party holds the money until the agreed steps happen. A holdback is a slice of the price, 5% to 10%, kept in escrow for 6 to 12 months after closing, in case the seller's numbers were rosy.
An earn-out is the opposite bet, part of the price paid later, only if the business performs. Two last distinctions. An asset sale means you buy the equipment, the name and the customers, and the seller's old debts stay with the seller. A stock sale means you buy the whole company, history included.
This plan prefers asset sales, and semi-absentee versus passive. Semi-absentee means a manager runs the floor while you run the business, about 10 to 20 hours a week. Passive means the owner does nothing. The SBA cannot lend to a passive business, so never pitch a lender that word. That is the vocabulary.
The memo parts that follow use these words the whole way through, and each one on the page now links back to the plain English glossary.