Executive summary

Example Bakery Inc., owned 100% by Pat Example, requests an SBA 7(a) loan of $450,000. With $14,125 of estimated closing costs added, the loan is $464,125. Pat Example owns 20% or more and is expected to guarantee.

FY2025 global cash flow of $184,630 covers existing debt service of $78,600 at 2.35x and debt service with the new loan of $140,713 at 1.31x, against SBA's 1.15x minimum. FY2024 coverage with the new loan is 1.18x, also above it. After estimated MCAPEX, FY2025 coverage is 1.03x.

Working capital is $83,000, the current ratio 1.94x and debt to tangible net worth 1.58x. The guarantor reports available liquidity of $102,000 and net worth of $492,000. Strengths are revenue growth of 7.2%, light existing leverage and adequate guarantor liquidity. The main risks are thin coverage after MCAPEX of 1.03x, FY2024's narrow margin over the minimum and a stale balance sheet. Readiness grade: Close.

Loan request and structure

SBA 7(a), $450,000 requested. Estimated closing costs of $14,125 are all added to the loan, for a loan of $464,125 and nothing paid at closing. Assumed terms: 10-year amortization at 6.10% (10-year Treasury + 2.00%, rates as of 2026-10-16). FY2025 cash flow supports up to $612,337 at SBA's 1.15x minimum. The use of proceeds isn't on the sheet; the lender will need it.

Sources used

FY2024 and FY2025 come from the business's tax returns and the guarantor's personal returns, all tax basis, so tax-basis and book-basis years aren't mixed. The balance sheet is as of 2025-12-31. The personal financial statement is as of 2026-09-30, and the debt schedule was entered by the owner.

Operating performance

Revenue rose 7.2%, from $1,198,000 in FY2024 to $1,284,000 in FY2025. Gross margin held at 63% and 64%. Net income rose from $79,900 to $101,900, and owner compensation from $85,000 to $90,000. The sheet doesn't show what held FY2024 back; the lender will ask.

Business cash flow

FY2025: net income of $101,900, plus interest of $14,200, depreciation of $38,500 and guarantor officer compensation of $90,000, less distributions of $70,000, gives business cash flow of $174,600.

FY2024: net income of $79,900, plus interest of $16,800, depreciation of $41,200 and officer compensation of $85,000, less distributions of $85,000, gives $137,900.

Officer compensation

Method A: the guarantor's officer compensation ($90,000 in FY2025, $85,000 in FY2024) is added back to business cash flow, and the same W-2 wages aren't counted again as personal income, so owner pay is counted once. No mismatch between the business return and the W-2 wages is flagged.

Depreciation, amortization and Section 179

Depreciation of $38,500 (FY2025) and $41,200 (FY2024) is added back. No amortization, Section 179 or finance-lease items are on the sheet.

Distributions and officer loans

Distributions of $70,000 (FY2025) and $85,000 (FY2024) are deducted from business cash flow and credited to the guarantor's personal cash flow. FY2024 distributions were more than that year's net income of $79,900. Nothing on the sheet points to an officer loan, though the $6,000 of other current assets should be identified in case any of it is owed by the owner.

Affiliates and holding companies

None are in the analysis.

Personal cash flow

Pat Example's personal cash flow after taxes and living expenses is $10,030 in FY2025: $1,800 of interest and dividends and $70,000 of distributions, less $27,500 of federal income tax and $34,270 of living expenses. In FY2024 it's $28,475: $1,500 of interest and dividends and $85,000 of distributions, less $22,300 of federal tax and $35,725 of living expenses.

Living expenses use the tiered formula, 25% of the first $100,000 of wages, interest, dividends and distributions plus 15% of the rest, with distributions counted. K-1 income from the business is left out of personal income because it's already in business cash flow.

Debt service

Existing debt service is $78,600 a year: the business's equipment loan ($2,900 a month, balance $96,000) and delivery van loan ($780 a month, balance $22,000), and the guarantor's car loan ($520 a month) and home mortgage ($2,350 a month). All stay in place; nothing is paid off or replaced at closing. With the new loan, debt service is $140,713.

Leases

There are no finance leases on the sheet.

SBA 504 and new debt

This isn't a 504 request. The new SBA 7(a) loan of $464,125 brings total debt service to $140,713.

Global debt service coverage

FY2025: 2.35x today and 1.31x with the new loan (no debt is being replaced, so coverage before credit for replaced debt is the same). FY2024: 2.12x and 1.18x. Against SBA's 1.15x minimum, both years pass, FY2024 narrowly. Cash left after payments with the new loan is $43,917 in FY2025 and $25,662 in FY2024.

Where a lender's numbers could differ

Living expenses: the sheet counts distributions in the living-expense base, the conservative way; a lender that leaves them out would show more personal cash flow and higher coverage. Distributions: a lender may judge what the owner can keep taking differently, especially after FY2024. Loan terms: a 10-year amortization at 6.10% is assumed; a different term or spread changes the payment. Maintenance spending: the reserve is an estimate from depreciation and a lender may use its own. Balance sheet: a current interim could move working capital either way.

Coverage after MCAPEX

With no documented amount, MCAPEX (maintenance and repairs) is estimated as FY2024 and FY2025 depreciation divided by two, $39,850 a year. Coverage after it is 1.03x in FY2025, down from 1.31x and under SBA's 1.15x minimum, and 0.90x in FY2024, down from 1.18x. FY2024's depreciation was the higher of the two years, which raises the estimate. A documented capital spending plan would replace it.

Liquidity and balance sheet

As of 2025-12-31: working capital of $83,000, a current ratio of 1.94x, a quick ratio of 1.56x, tangible net worth of $149,000 and debt to tangible net worth of 1.58x. The preliminary borrowing base is $46,800.

Pat Example, as of 2026-09-30: net worth of $492,000, available liquidity of $102,000, $142,000 of retirement savings not counted as liquid, real estate equity of $234,000 and contingent liabilities of $0. With closing costs added to the loan, no cash is needed at closing.

Industry, collateral and SBA eligibility

The sheet has no industry data or appraisal. The lender will value the business's assets as collateral and may look to the guarantor's home, where the sheet shows $234,000 of real estate equity. The owner's answers meet SBA's basic eligibility rules; the lender confirms them, checks that the business can't get the same loan on reasonable terms without SBA's guaranty, and applies its own credit standards.

Risks, mitigants and next steps

Thin coverage after MCAPEX: a list of equipment ages and planned purchases, and lower distributions. FY2024's narrow margin: a written explanation, backed by current interim results showing FY2025's level is holding. Stale balance sheet: current interim statements. Other current assets of $6,000: identify them.

The preliminary borrowing base of $46,800 suggests a small line of credit against receivables and inventory could be considered separately. Next steps: the FY2024 explanation, year-to-date statements, the use of proceeds and the detail of other current assets.

Final credit conclusion

Graded Close. Coverage with the new loan of 1.31x in FY2025 and 1.18x in FY2024 meets SBA's 1.15x minimum, but coverage after MCAPEX is 1.03x in FY2025, under the minimum, and two items are open. The assumptions most likely to change a lender's result are counting distributions in living expenses, the maintenance reserve and the assumed loan terms. If a lender wants more cushion, realistic changes are a smaller loan, a longer term where the use of proceeds allows it, or more cash into the deal. The most likely path is current interim statements showing FY2025's level is holding, with answers on the open items. Before relying on this review, a lender will need the interim statements, the use of proceeds, a credit report and a collateral valuation.