How to Price a Business for an SBA Buyer
Under SBA SOP 50 10 8.1, a 7(a) buyer's debt is capped at the lender's valuation and tested on past earnings, with one narrow Special Purpose Property exception, so on our reading the financeable price is what your verified earnings support. Total debt, including a seller note not on full standby, is "limited to the business valuation amount", any price above the valuation must be equity, and an Initial Acquisition is tested at 1.25:1 on the last one or two fiscal years. At 10.0 percent over ten years with no other debt, $375,000 of justified EBITDA carries a $1,890,000 loan and, with 10 percent equity and $150,000 of costs, a $1,950,000 price if the valuation supports it; a $2,250,000 ask on a 90 percent loan drops coverage to 1.09.
General information, not lending, legal, tax or valuation advice; we are not a lender, an appraiser, a business broker or attorneys. This covers an SBA 7(a) Initial Acquisition, Business Expansion or Owner Buyout under Appendix 15 of SOP 50 10 8.1, effective 1 October 2026. Confirm with your lender, CPA and attorney.
Why does the lender's valuation, not the seller's, cap what a buyer can borrow?
Because, outside ESOP loans, Appendix 15 makes the valuation the lender's document:
the business valuation must be requested by and prepared for the Lender. The Lender may not use a business valuation prepared for the Applicant or the seller.
The lender must take the figures its valuation analyst relied on and "verify that information against the seller’s IRS transcripts"; separately, "For a change of ownership, the SBA Lender must verify the seller’s financial data". One tier changes who may perform the valuation, not whose document it is: "If the Business Purchase Price is $350,000 or less, the Lender may perform its own valuation of the business being sold, unless there is a close relationship between the buyer and seller"; the 7(a) Small chapter lists it as a 7(a) Small and SBA Express rule, so on a Standard 7(a) loan, confirm with your lender. See SBA business valuation requirements and SBA loan to buy a business.
How much can an SBA buyer borrow to buy a business?
At most, the lowest of four SOP limits: the lender's valuation; the debt the earnings cover at the transaction type's ratio; in an Initial Acquisition, 90 percent of total project cost, because the 10 percent equity injection cannot be reduced; and $5,000,000 on one Standard 7(a) loan.
The total debt eligible to support a change of ownership transaction (including seller debt that is not on full standby) is limited to the business valuation amount and must be supported by the Debt Service Coverage of the Applicant.
Coverage is tested on "either the last fiscal year-end or an average of the last two fiscal year-end statements", at "Initial Acquisition: 1.25:1", "Business Expansion: 1.15:1" and "Owner Buyout: 1.25:1". The lender must evaluate post-closing projections but "may not rely on them to meet the DSC requirement", except for an owner-occupied Special Purpose Property integral to the business whose appraised value fully collateralizes the loan, with the ratio met within two years of funding. More: SBA debt service coverage requirements.
"The maximum loan amount for any one Standard 7(a) loan is $5,000,000", as in 15 U.S.C. 636(a)(3)(A). Change of ownership loans "must not have an amortization that exceeds 10 years", Special Purpose Properties aside, but with real estate "Only the portion of the real estate purchase may have an amortization that exceeds 10-years, up to a maximum of a 25-year term". The variable-rate ceiling, "Loans of $350,001 and higher: Base rate + 3%", is 10.0 percent at the 7.00 percent "Bank prime loan" rate on the H.15 release of 29 October 2026.
Illustration, not a forecast or a rate quote: Initial Acquisition, one 7(a) loan at 10.0 percent; no real estate or other debt; ten-year full amortization, monthly payments, annual debt service 12 times the rounded payment.
| Step | Amount | Rule or arithmetic |
|---|---|---|
| EBITDA after justified adjustments, last fiscal year-end | $375,000 | Or the two-year average |
| Maximum annual debt service at 1.25:1 | $300,000 | $375,000 / 1.25, or $25,000 a month |
| Loan $25,000 a month carries at 10.0 percent over 120 months | $1,891,779 | $25,000 x 75.671163, the present value of $1 a month |
| 7(a) loan, rounded down | $1,890,000 | Inside the 10 year cap |
| Check: payment on $1,890,000 | $24,976.49 a month, $299,717.88 a year | $375,000 / $299,717.88 = 1.2512 |
What price can an SBA buyer pay for a business?
On $375,000 of EBITDA, a 10.0 percent ten-year loan, 10 percent equity and $150,000 of costs: $1,950,000, if the valuation is at least that. Asking $2,250,000 fails coverage at a 90 percent loan and, against a $1,950,000 valuation, breaks the debt cap and leaves $300,000 that must be equity.
Equity is "based on the total project cost", at "Initial Acquisition: 10%", which "cannot be reduced or eliminated". With a 90 percent loan, $1,890,000 / 0.9 = $2,100,000 total project cost and $210,000 of equity; less $150,000 of working capital and closing costs, the price is $1,950,000. "The business valuation must support the Business Purchase Price as defined in Paragraph A.1 regardless of how the debt is structured".
| Line | $1,950,000 price | $2,250,000 ask |
|---|---|---|
| Total project cost, with $150,000 of costs | $2,100,000 | $2,400,000 |
| Minimum equity, 10 percent | $210,000 | $240,000 |
| 90 percent 7(a) loan | $1,890,000 | $2,160,000 |
| Debt cap at a $1,950,000 valuation (our reading: whole loan) | $1,950,000 | $1,950,000 |
| Annual debt service on the 90 percent loan | $299,717.88 | 12 x $28,544.56 = $342,534.72 |
| Coverage on $375,000 of EBITDA | 1.25 | 1.09 |
| EBITDA needed for 1.25:1 | $374,647.35 | $428,168.40 |
| Equity if a gap counts toward the 10 percent minimum | $210,000 | $510,000, loan $1,890,000 |
| Equity if a gap sits on top of the minimum | $210,000 | $540,000, loan $1,860,000 |
The SOP's cure is the buyer's: the "Applicant may contribute additional unlimited or limited equity to reduce the loan amount and corresponding debt service in order to meet the DSC requirement". Holding the loan at $1,890,000 takes $2,400,000 less $1,890,000 = $510,000 of equity, which covers the $300,000 gap and is $270,000 over the minimum, or $240,000 plus $300,000 = $540,000 if the gap sits on top of it. The SOP text we read does not say which; confirm the treatment with your lender. Keeping the $2,160,000 loan instead takes $428,168.40 of justified EBITDA, $53,168.40 more than the business has, and a valuation of at least $2,160,000 to clear the debt cap, or $2,250,000 for no gap.
What add-backs does an SBA lender allow, SDE or EBITDA?
Those the lender justifies in its credit memorandum, starting from EBITDA. The historical ratio is "earnings before interest, taxes, depreciation, and amortization (EBITDA) divided by the combined debt service post-transaction". On the adjusted basis the lender must justify "additions and subtractions to cash flow", such as "Unfunded capital expenditures", "Non-recurring income", "Seller discretionary expenses" and "Ownership Compensation". Owner compensation adjustments "must meet the 1:1 DSC on a global basis", and "Adjustments to cash flow without the Lender’s supporting analysis and justification will be ineligible for purposes of determining this core underwriting requirement".
The SOP's number is EBITDA, not SDE. Seller's discretionary earnings (SDE) is not an SOP term as we read it. In our illustration $475,000 of SDE becomes $375,000 of adjusted EBITDA once $100,000 of owner compensation stays in the expense line as the buyer's salary.
Can a seller note carry the part of the price above the valuation?
Only on full standby, and then it can carry a price above the valuation.
"Seller debt that is subordinated to the Lender and on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA’s purposes". Limited sources together "may provide no more than half of the required Equity Injection". Above the value "supported by the Business Valuation and Quality of Earnings report", more limited sources may be used, but "any additional funds provided must be on full standby"; below a $3 million Business Purchase Price no QoE is required, so on our reading that value is the valuation's. "Seller debt structured in conjunction with a change of ownership transaction is eligible to be refinanced after it has been in place and current for 36 months"; the refinancing rule says "in place and current (not on standby) for at least 36 months following the change of ownership".
A note that pays you currently is "seller debt that is not on full standby": it counts inside the debt cap and in the "combined debt service post-transaction", so in our example its payments share the $300,000 a year. If it is interest-only, "the Lender must apply an amortization that does not exceed 10-years". "Seller earnouts are prohibited". Standby mechanics: SBA equity injection requirements.
Is real estate part of the price the valuation must support?
No. Outside a Special Purpose Property, the business is valued "not including real estate, which is separately valued through a real estate appraisal", and the thresholds run on the Business Purchase Price, which Appendix 3 defines as:
In a change of ownership transaction, the price set by the purchase and sales agreement, less the portion of owner-occupied commercial real estate assets being acquired in the transaction. The portion of the owner-occupied commercial real estate is established by the appraised value.
A $2,450,000 contract including your building, appraised at $500,000, has a Business Purchase Price of $1,950,000, and the $350,000 and $3 million tests run on that, "independent of total project costs". For a Special Purpose Property the valuation must "allocate separate values to the individual components of the transaction including land, building, equipment, and intangible assets".
When does an SBA business purchase need a Quality of Earnings report?
At $3 million or more in an Initial Acquisition or Business Expansion, unless it is an owner-occupied Special Purpose Property. "For Business Expansion and Initial Acquisition transactions where the Purchase Price as defined in Paragraph A.1 is equal to or greater than $3 million, the Lender must also obtain a Quality of Earnings (QoE) in addition to the required Business Valuation", a threshold "determined before the application of buyer equity, seller debt, or other financing sources"; but "A Quality of Earnings report is not required for a transaction involving the acquisition of an owner-occupied Special Purpose Property, regardless of the Business Purchase Price". The report "must not be prepared by or for the seller". The lender "must use the report’s findings to calculate the Debt Service Coverage", and "If that Debt Service Coverage does not support the business valuation and proposed debt structure, the loan amount must be reduced accordingly".
What is our Pricing Analysis, and what is it not?
Our Pricing Analysis, one of our exit and acquisition documents, runs this arithmetic on your figures in 7 business days: normalized SDE and EBITDA tied to your returns, an indicative range, and the debt an SBA 7(a) buyer could service at 1.25:1. It is not an appraisal, an opinion of value, an independent business valuation for SBA 7(a) or any lender's purposes, or a recommendation on any offer.
Our Pricing Analysis is $1,250, a confidential information memorandum with blind teaser and data room index $2,800, and an acquisition business plan $1,800, or $2,800 with the acquisition model, all fixed. We never charge a percentage of anything you borrow, invest, raise or sell, and no part of our fee depends on a transaction completing. Every price we charge is on one page: /pricing.
Business Plan Firm is the US practice of Avvale, a London consultancy. We have written 1,000+ plans for 500+ founders across 30+ countries, and our clients have raised $500M+.
How we verified this
Quotations match raw text retrieved 30 October 2026; arithmetic recomputed in Python.
- SBA SOP 50 10 8.1 (effective 1 October 2026): the Word file on SBA's SOP 50 10 page, dated 7 October 2026: Appendices 15, 18 and 3, Section A, Chapters 2 and 5 and Section B, Chapters 1 and 2.
- 15 U.S.C. 636(a)(3)(A) at the Legal Information Institute, for the statutory $5,000,000.
- 13 CFR 120.150 and 120.202: 7(a) proceeds may buy a business, and loans must be "so sound as to reasonably assure repayment"; the ratios, thresholds and standby rules are SOP policy.
- Federal Reserve H.15 release of 29 October 2026: 7.00 percent bank prime loan rate, 22 to 28 October 2026.
- Federal Register: SBA documents from 1 September 2026, none amending these rules.
Not verified, so not here: industry multiples; valuation, QoE or packaging fees; any lender's rate or SBA's maximum fixed rate; what counts as a close relationship; approval statistics.
Frequently asked questions
What limits how much an SBA buyer can borrow to buy a business?
For an Initial Acquisition under SOP 50 10 8.1, at most the lowest of the lender's business valuation, which caps total debt; the debt EBITDA covers at 1.25:1; 90 percent of total project cost, because the 10 percent equity injection cannot be reduced; and $5,000,000 on one Standard 7(a) loan. At 10.0 percent over ten years with no other debt, $375,000 of EBITDA carries $1,890,000.
Does the SBA use SDE or EBITDA to test a business acquisition loan?
EBITDA. Appendix 15 of SOP 50 10 8.1 defines historical debt service coverage as EBITDA divided by combined debt service post-transaction; SDE is not an SOP term as we read it. The lender must justify each adjustment, such as seller discretionary expenses or ownership compensation.
Can a seller note cover a price above the SBA business valuation?
Only on full standby. Under Appendix 15 of SOP 50 10 8.1, a price above the lender's business valuation must be made up by equity, and additional limited equity sources, such as a seller note, used above the value the valuation supports must be on full standby: no payments of principal or interest for the term of the 7(a) loan.
Is the building included in the Business Purchase Price for an SBA loan?
No. Appendix 3 of SOP 50 10 8.1 defines the Business Purchase Price as the contract price less owner-occupied commercial real estate at its appraised value, so a $2,450,000 contract including a building appraised at $500,000 has a Business Purchase Price of $1,950,000.
When does an SBA business purchase need a Quality of Earnings report?
Under Appendix 15 of SOP 50 10 8.1, an SBA 7(a) Initial Acquisition or Business Expansion at a Purchase Price of $3 million or more, measured before buyer equity and seller debt, needs a Quality of Earnings report, except an owner-occupied Special Purpose Property acquisition. It must not be prepared by or for the seller, and the lender uses its earnings for coverage.
General information as of 30 October 2026, not legal, lending, tax or valuation advice; the figures are illustrations, not a rate quote, a value or a recommendation on any price or offer.