How much will a bank lend to buy a business?

What are the limits on the loan amount?

1. Coverage. Cash flow available for debt service divided by total annual debt payments must be at least 1.25x for an Initial Acquisition or Owner Buyout, or 1.15x for a Business Expansion.
2. Valuation. Every change-of-ownership loan needs an independent business valuation. Total debt, including seller notes, is capped at the appraised value.
3. Equity. A first-time buyer injects at least 10% of total project costs, so the SBA loan is at most 90% of them.
4. Program cap. $5 million per borrower including affiliates under 7(a).

These rules come from SBA SOP 50 10 8.1, which applies to loans that receive an SBA loan number on or after October 1, 2026.

How does the coverage test work?

• It uses historical or adjusted historical cash flow: the last fiscal year or the average of the last two. Projections cannot be used to meet the test. Under SOP 50 10 8, they could.
• For an Initial Acquisition or Business Expansion with a purchase price of $3 million or more, the lender commissions a quality of earnings report, and QoE earnings are used in the calculation.
• Seller debt not on full standby is included in debt service, at a maximum 10-year amortization.
• Cash flow available for debt service is what remains after operating costs and a salary for whoever runs the business. Ask your lender what salary figure it assumes.

The loan side uses the rate and term. The business portion amortizes over at most 10 years. With prime at 7% in September 2026, the maximum variable rate for loans over $350,000 was prime plus 3%, or 10%. At 10% over 10 years, annual payments are about 15.86% of the loan amount.

Worked example: a business with $500,000 of SDE

Seller's discretionary earnings (SDE) are $500,000. Assume a $100,000 salary for the owner-operator. Working capital and fees are $150,000. These inputs are illustrative.

1. Cash flow available for debt service: $500,000 - $100,000 = $400,000.
2. Maximum annual debt service at 1.25x: $400,000 / 1.25 = $320,000.
3. Maximum loan at 10% over 10 years: $320,000 / 0.15858 = about $2,017,900.
4. Maximum total project costs with a 10% injection: $2,017,900 / 0.9 = about $2,242,100.
5. Maximum price the coverage supports: $2,242,100 - $150,000 = about $2,092,100, or about 4.2x SDE.

Now apply the other limits:

• Valuation. If the appraisal comes in at $1,600,000, total debt cannot exceed $1,600,000, whatever the coverage allows.
• A regular seller note. Add a $200,000 seller note at 7% over 3 years, not on standby. Its payments are about $74,100 a year. Bank capacity falls to ($320,000 - $74,100) / 0.15858 = about $1,550,600.
• A Business Expansion. At 1.15x, maximum debt service is $400,000 / 1.15 = about $347,800, which supports about $2,193,400 of loan.

Coverage capacity is not a price recommendation. BizBuySell data puts the all-sector average at 2.57x SDE. A bank's capacity above the market multiple tells you the deal is financeable, not that you should pay more.

Does the median business pass?

BizBuySell's median sale price is $350,000 and its median cash flow is $165,000. Take a $350,000 price with $42,500 of working capital and fees.

1. Total project costs: $392,500. Injection: $39,250. SBA loan: $353,250.
2. Annual payment at 10% over 10 years: about $56,000.
3. Cash flow needed at 1.25x: about $70,000.
4. Most the owner can be paid while still passing: $165,000 - $70,000 = about $95,000.

The deal works if the buyer can live on about $95,000 and the business needs no other hire to replace the seller. The salary assumption can decide whether a small deal passes. Industry matters too: data on leased laundromats shows only a minority clear 1.25x after a $60,000 owner salary.

If you already own a business

A Business Expansion uses 1.15x, which raises capacity on the same cash flow by about 8.7% (1.25 / 1.15). The lender may reduce or waive the injection. But your existing SBA loans count toward the $5 million affiliate cap, and there is no reduction in full personal guarantors.

Where these numbers come from: Coverage, valuation, QoE and cap rules are from SBA SOP 50 10 8.1 as summarized by Beancount, Cantrell Law and FunderIntel. Rates are from NerdWallet; check current prime. SDE multiples, median price and median cash flow are BizBuySell data via Beancount. Laundromat coverage data is from BigIdeasDB. Confirm current terms with an SBA lender. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

Can the bank use next year's projected earnings?

No. As of October 2026, coverage is tested on historical or adjusted historical cash flow only. Growth you plan to create does not raise the loan.

What happens if the appraisal is below my price?

Total debt is capped at the appraised value. You renegotiate the price or cover the gap with cash.

Does a seller note reduce what the bank will lend?

Yes, unless it is on full standby. A note with payments is included in debt service at a maximum 10-year amortization, which uses up coverage.

Will a quality of earnings report change the loan amount?

It can. At a purchase price of $3 million or more, the lender uses QoE earnings in the coverage test. If the QoE finds $100,000 less cash flow than the seller reported, capacity falls by about $504,000 at 1.25x and 10% over 10 years.

What comes next

Whatever the bank lends, someone signs for it: Can I avoid the personal guarantee on an SBA loan?

Related articles

• What are the SBA 7(a) rules for buying a business, as of October 2026?
• Can a seller note count toward the SBA 10% down payment?
• How does an SBA loan to buy a business work?
• How much should I pay for a business?
• How do you build a holding company for acquisitions?

• My deal cleared 1.15x DSCR. What happens now that the SBA requires 1.25x?
• How do I calculate DSCR on a business I want to buy (using tax returns, not the broker's SDE)?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.