SBA Loan Calculator

Why Consider an SBA Loan for Buying a Business?

If you’re exploring financing options for a business purchase, an SBA (Small Business Administration) loan can be a wise choice. It often provides lower interest rates and longer repayment terms than conventional loans, making it attractive for first-time owner-operators and experienced buyers.

Why Consider SBA Loan Terms When Selling a Business?

Pricing your business outside typical SBA loan multiples can drastically reduce your pool of potential buyers. Since most owner-operators rely on SBA financing, the deal must fit within the bank’s lending parameters—especially regarding acceptable debt coverage and cash flow.

By aligning your asking price with standard SBA multiples, you’re more likely to attract qualified buyers who can secure the necessary financing. This reduces the need for seller financing and lets you walk away with most (or all) of your selling price in cash, leading to a smoother transaction and helping ensure your business closes at a fair market value without unnecessary delays.

How to Use the Tables Below

The following tables illustrate the maximum business purchase price a lender could approve at various interest rates (5% to 10%), assuming:

A 10-Year Loan
A 1.25 debt coverage ratio (DCR)
Buyer contributes 20% equity to the transaction.
Different levels of Owner Salary + Benefits
Varying Available Cash Flow from the business

Each table’s columns represent the projected Available Cash Flow, while each row shows an Owner Salary + Benefits amount. The table cells provide an estimated Company Maximum Value based on the leftover cash to service the SBA loan and your contributed equity.

Calculating SBA-Supported SDE Multiples

How We Calculate SBA-Supported Multiples

We arrive at the SBA-supported multiple by dividing the “Company Maximum Value” (from each cell in the tables) by the “Seller’s Discretionary Earnings” (SDE) in the top row. This simple calculation shows the maximum amount a seller should expect from a buyer relying on SBA financing to purchase the business.

The Key Takeaway

Because SBA loans require a solid debt coverage ratio, these multiples rarely exceed 4.5. In many cases, they hover around the mid 3s. Higher SDE can bump the multiple a bit higher, but for the typical small business sale financed via an SBA loan, this range represents a practical upper limit.

Key Terms Explained

SBA Loan: A loan partially guaranteed by the Small Business Administration. The bank’s risk is lowered, which often translates into more favorable terms.
Debt Service Coverage Ratio (DSCR): A ratio of at least 1.25 means the business produces 25% more cash flow than the minimum needed for debt payments, providing a buffer.
Company Maximum Value: The total amount you’ll be able to pay to acquire the business while remaining within SBA standards. This amount includes your equity contribution.
Equivalent Multiples: These are the multiples if the business were valued at the maximum SBA loan value.

Tables for 5%–10% Interest Rates

Fixed Values - Equity Injection Percentage=10% and Debt Service Coverage Ratio=1.25

Results:

Annual Cash Flow for Debt Service: $

Monthly Payment: $

Maximum Loan Amount:

Equity Injection Amount: +

Maximum Purchase Price:

Amortization Schedule:

Month	Interest	Principal	Remaining Balance

For Business Sellers: Understanding SBA Loan Constraints

If you’re a business owner with less than $1 million in Seller’s Discretionary Earnings (SDE) and anticipate selling to an owner-operator, the buyer will likely rely on an SBA loan. This introduces a few important considerations:

Price Ceiling: Because SBA loans require a 1.25 DCR, the business’s cash flow, and the buyer's salary and benefits must comfortably cover the loan payment. This can naturally cap the amount a buyer can pay.
Lower Multiples vs. Big Deals: You may have seen high multiples (like 5x, 6x, or more) in the press for large acquisitions or private equity deals. Smaller “main street” or “lower middle market” businesses—especially those under $1 million in SDE—frequently see lower multiples. This is a realistic reflection of the financing constraints and the hands-on involvement of an owner-operator.
Faster, Stable Transactions: While it might feel like the sale price is lower than the big headlines, SBA-backed deals can close more quickly (once approved) and provide a reliable funding mechanism. You trade a bit of potential upside for a smoother, more certain transaction and the ability to get most of your proceeds as cash at closing.

Why This Matters

For Buyers:These tables offer a quick way to see how the owner’s salary and interest rates affect the maximum purchase price, giving you the confidence to negotiate and plan.
For Sellers:Understanding the buyer’s loan dynamics helps you set realistic expectations. You’ll see how the business’s cash flow limits purchase price—even if external factors (like market hype) suggest higher valuations.

Work with an Experienced Business Broker

I have years of experience helping clients navigate transactions. Whether you’re a buyer or seller:

Expert Guidance:Considering your specific situation, I’ll explain these tables in context.
Customized Strategy:No two businesses are alike. We’ll tailor your plan based on your opportunity's unique financials.
Proven Track Record:I've facilitated countless successful deals, from small owner-operator businesses to more significant tech deals with corporate or private equity buyers.

Ready to Get Started?

Let's discuss whether you want to purchase or sell a business and have questions about SBA financing. Understanding the numbers—from interest rates to debt coverage ratios—is key to a successful transaction.

Contact me today to learn how to structure a deal that works best for your goals. Let’s put these tables to work for you, ensuring that your purchase or sale aligns with the realities of SBA-backed funding.