How much business can I afford? Calculator, income and liquidity
Short answer
The price you can afford with an SBA 7(a) loan is limited by three things: the debt the business's historical EBITDA covers at 1.25 times, the independent valuation (debt can't exceed it), and your equity (at least 10% of the total project). Enter your numbers below and the calculator shows which limit binds and how much cash you'd need.
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Total project cost:
Debt the cash flow supports (10 yrs, 1.25x):
Maximum SBA loan after all three tests:
Cash and equity you'd need:
How the three tests work
- Cash flow: EBITDA ÷ 1.25, minus other debt payments, is the most the SBA loan's annual payment can be. The calculator turns that into a loan amount over 10 years at your rate.
- Valuation: total purchase debt can't exceed the independent valuation. If you don't have one yet, it's assumed equal to the price, which is optimistic.
- Equity: at least 10% of total project cost, so the loan can't exceed 90% of it.
Example with the default numbers
Illustration, not a real deal
A $1,800,000 business with $150,000 of working capital and costs is a $1,950,000 project. $380,000 of EBITDA at 1.25x allows $304,000 a year of debt service, which supports about $1.92 million over 10 years at 10%. The 10% equity rule allows $1,755,000. The valuation (assumed at price) allows $1,800,000. The equity rule binds: the loan is $1,755,000 and you need $195,000, of which up to $97,500 could be a seller note on full standby.
What this doesn't capture
Lender-specific requirements (extra equity, post-closing liquidity, credit score), collateral shortfalls, a QoE that adjusts EBITDA on $3 million-plus deals, and the global cash flow test on your personal obligations. Treat the result as an upper bound. More in how lenders size acquisition loans.
Income requirements
SBA doesn't require a minimum personal income, but SOP 50 10 8.1 requires that the buyer's pay from the business be enough to cover current obligations and living expenses, and that global cash flow (the business plus the owners' personal finances and affiliates) cover all debts at least 1:1. If the lender assumes you'll take a lower salary to make the business's coverage work, it must show with a global analysis that you can live on it.
There's a tension in every acquisition: the less you pay yourself, the better the business's coverage looks. SBA's rules stop that from being solved on paper.
Two tests that use your income
Business DSC
The business's EBITDA, after a market salary for whoever runs it, must cover the new debt at 1.25x (1.15x for expansions).
Global cash flow
Business cash flow plus personal income, minus personal obligations and affiliate impacts, must cover everything at 1:1.
Appendix 15 says adjustments to owner compensation must be substantiated by a global cash flow analysis showing the principals can meet their obligations on the adjusted pay, at 1:1 globally. And the applicant's owner compensation must be sufficient to support current obligations and living expenses.
A worked example
Illustration, not a real deal
Say the business's EBITDA after paying you $150,000 covers its debt at 1.30x. Your household obligations (mortgage, car, student loans, living costs) total $130,000 a year after tax, and your take-home on $150,000 is about $112,000. Your spouse brings home $40,000. Household income $152,000 vs obligations $130,000: global coverage about 1.17x. Passes.
If you'd planned to pay yourself $90,000 to push business coverage to 1.6x, take-home of about $70,000 plus $40,000 wouldn't cover $130,000, and the lender couldn't use that lower salary.
What to prepare
- An honest personal budget that matches your personal financial statement.
- Your spouse's income documentation, if it's part of the picture.
- The salary you'll take, consistent in your projections and the lender's analysis.
- Details of any other businesses you own, which go into global cash flow.
More on adjustments in owner compensation adjustments.
Liquidity after closing
SBA doesn't set a fixed post-closing cash number, but SOP 50 10 8.1 requires the lender to analyze working capital adequacy for at least the next 12 months, a pro-forma balance sheet and global cash flow at 1:1 for every acquisition. Lenders turn that into their own liquidity requirement, so expect to show cash or a line of credit beyond your 10% equity, enough to carry the business through its normal cash cycle.
Buyers focus on the down payment and forget the day after. The business you buy will have payroll, rent and supplier bills before the next customer pays. Lenders know this, and SOP 50 10 8.1 makes them analyze it.
What the lender has to analyze
- Working capital adequacy over at least the next 12 months.
- A pro-forma balance sheet reflecting the SBA loan, other debt, equity injection and use of proceeds.
- Ratios on that balance sheet, including current ratio and debt to tangible net worth, compared with industry trends.
- Global cash flow at 1:1, including your personal obligations and any affiliate businesses.
- Owner compensation sufficient to cover your current obligations and living expenses.
Working it out for your deal
Illustration, not a real deal
Say you're buying a B2B staffing firm. Clients pay in 45 days; payroll is weekly. Monthly payroll is $180,000, so roughly $270,000 of receivables are always outstanding. The seller's balance sheet included those receivables, but your purchase agreement excludes cash and receivables. On day one you'll need to fund about six weeks of payroll before collections catch up.
That gap can be covered with working capital in the SBA loan, a line of credit, or your cash. The lender will want to see which, and that it's enough.
Practical targets
SBA doesn't publish one, and we won't invent one. Ask each lender what it expects. Then build your own number from the business: the payroll and fixed costs until collections normalize, seasonal low months, any capex the business has deferred (a QoE often finds it), plus a personal cushion for several months of living costs on your new salary.
Related: working capital in an SBA acquisition loan and income requirements.
How a lender would check the same numbers
The calculator gives a buyer a first answer. A lender reaches its own by working from verified documents: the seller's tax returns checked against IRS transcripts, a market wage deducted for any role the buyer won't fill personally, the full debt service on every loan in the structure (including any paying seller note), and a global cash flow analysis showing the buyer can meet personal obligations where owner pay is adjusted. If the business's historical cash flow doesn't cover the proposed debt at the minimum ratio (1.25x for an Initial Acquisition), the loan is resized, not the ratio. Buyers who run the calculator on the tax-return figures rather than the listing's adjusted figures usually get closer to the lender's answer.
Use the result as a starting point for a conversation with a lender, not as an approval.
Common questions
What EBITDA should I enter?
The business's historical EBITDA from the last fiscal year or the average of the last two, after replacing the seller's pay with a market salary for whoever will run it. Only include add-backs you could prove with documents.
Why is the result different from the asking price?
Asking prices are often set on broker add-backs and optimistic multiples. Lenders size loans on verified historical cash flow and the independent valuation.
Does this include a seller note?
You can enter annual payments on a paying seller note in 'other debt payments'. A note on full standby has no payments and can provide up to half of the 10% equity.
Does my spouse's income help?
It can, in global cash flow, by covering household obligations. It's also the classic outside repayment source for a personal loan used toward the equity injection.
Can I keep my current job after buying?
Lenders want to know who will run the business day to day. Keeping a full-time job raises management questions and, if someone else manages it under an agreement, possible passive-business issues.
Related guides
Sources
This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.