How SBA Financing Works When Someone Buys Your Company
- Cameron DuPree
- Aug 19
- 2 min read
If your company sells in the lower middle market, there is a strong chance the buyer is borrowing, and a strong chance the loan is an SBA 7(a). That means a third party you never meet, the lender's underwriter, has effective veto power over your price. Understanding how they think is worth more than most negotiating advice.
What the lender is actually underwriting
Not your company's story. Its debt service coverage. The underwriter takes your normalized earnings, subtracts a market-rate salary for the buyer, subtracts the annual debt payments, and checks whether what remains clears their required cushion. If it does not, the loan shrinks, and the price follows.
This is why add-back discipline matters so much. Every adjustment the underwriter rejects reduces the earnings the loan is sized on. A seller who cannot document add-backs is not just arguing with a buyer, they are arguing with a bank that has no reason to be generous.
The structural requirements that shape your deal
Buyers generally need to inject equity, and lenders often allow part of that requirement to be met with a seller note on standby, meaning no payments to you until the bank loan is satisfied or a defined period passes. That is why seller financing appears in so many deals at this size: it is frequently structural, not a negotiation loss.
Lenders also require a personal guarantee from the buyer, will order valuations and often equipment appraisals independently, and will scrutinize any transaction where the seller stays involved. If you plan to consult after closing, disclose that early, because SBA rules limit post-closing seller involvement and a surprise here can unwind an approved loan.
Why deals stall here
The lender's process runs in parallel with the buyer's diligence and is frequently the real critical path. Common failure points: the appraisal comes in below the agreed price, the buyer's personal financials do not support the guarantee, a landlord will not sign a lease assignment with the required terms, or the business has customer concentration the underwriter will not accept.
What you can control
Clean, documented financials that survive third-party testing. An equipment schedule with defensible values. Contracts that are assignable. A landlord conversation that happens early. And a buyer who was pre-qualified with a real lender before you granted exclusivity, not after.
The most expensive version of this is granting a buyer sixty days of exclusivity, then discovering in week seven that their financing was never going to clear.
Comments