Free calculator Buying a business with an SBA 7(a)
Seller note calculator
SBA needs you to put in at least 10% of the cost of buying a business, and a seller note can make up part of it. Enter the price, your cash and what the seller will lend to see whether you're there, and the payments the business has to cover.
- Free, no sign-up
- Nothing you type is sent anywhere
- SBA's rules, as the full check applies them
- Your cash
- $50,000
- Seller note on full standbyIt can make up half of the 10%.
- $50,000
- Your 10%
- $100,000
The SBA 7(a) loan lends the other $900,000, at $11,401 a month. The seller takes no payments until it's paid off.
Seller note calculator
Is your seller note enough, and can the business carry it?
It starts with the made-up purchase above. Replace it with yours. Everything is worked out in your browser.
Your share of the total cost
10%
That meets SBA's $100,000 minimum, 10% of the $1,000,000 total cost.
- Your cash
- $50,000
- Seller note that counts
- $50,000On full standby, up to half of the minimum, $50,000
- SBA 7(a) payment
- $11,401 a monthon $900,000
- Seller note payment
- Noneuntil the SBA loan is paid off
- Debt coverageDebt coverage (DSCR). The debt service coverage ratio: a year's cash flow divided by a year's loan payments, old and new. 1.30x means $1.30 of cash flow for every $1 of payments. Most lenders want at least 1.25x, and SBA lenders 1.15x. The full check counts the owners too: their other income, their living costs and their personal loan payments.
- 1.46x$200,000 against $136,810 of payments a year. SBA needs 1.25x to buy a business.
An estimate, not a bank-ready answer. A lender tests the seller's last 2 or 3 years, adds your own income and debts, and needs an independent valuation of the business. The full check does that with your returns and the seller's.
Run the full checkHow SBA counts a seller note
At least 10% from you, and a standby note can be half of it.
When you buy a business with an SBA 7(a) loan, SBA needs at least 10% of the total cost from you: the price, plus the working capital and closing costs the purchase pays for. For a first purchase, SBA won't lower it (SBA SOP 50 10 8.1).
Full standby counts. Payments don't.
A seller note on full standby, with no payments at all, not even interest, for the life of the SBA loan, can make up to half of your 10%. On the made-up $1,000,000 purchase, that's up to $50,000. A larger standby note still helps by lowering the SBA loan, but the part over $50,000 doesn't count: with a $150,000 note, you'd still need $50,000 of your own cash.
A seller note with payments can still be part of the purchase. It doesn't count toward your 10%, and its payments count with the SBA loan's: the same $50,000 note at 6.00% over 10 years adds $555 a month, and leaves you short of the 10% by $50,000.
When the 10% can be lowered
If your business has had the same owners for 2 full years or more and is buying another in the same line of work, SBA counts it as an expansion, and a lender may lower or waive the 10% when your business has enough cash and working capital after closing. The same goes for buying out a co-owner.
What else a lender tests
The seller's past results have to carry the new payments.
- Cash flow of at least 1.25 times the payments, measured on the seller's past results, with the seller's pay added back. Your projections are required too, but they can't make up for past results that fall short. A business expansion needs 1.15x.
- Your own income and debts. You guarantee the loan, so a lender adds your side, including what you'll need to live on, the way the DSCR calculator does.
- An independent valuation of the business, which SBA requires for every change of ownership, and a quality of earnings report when the price, not counting real estate, is $3,000,000 or more.
- The seller's last 3 years of tax returns and financial statements, your projections for 2 years and the purchase agreement.
- Your experience in the line of business. A seller who stays on as a consultant, for up to 24 months, can help with that.
How lenders figure cash flow
Where each number is on the seller's tax return, and what a lender adds back.
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Check the purchase the way a lender will.
The full check tests the seller's years with your income and the new debt, and says what a lender will ask for.
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