Question 1

What is a seller note standby period?

Accepted Answer

A seller note standby period is a time frame (typically 2 years) during which the buyer makes no principal or interest payments on the seller note. The SBA requires this so the business can focus on servicing the SBA loan first. After the standby period ends, the seller note begins fully amortizing.

Question 2

What DSCR do SBA lenders require?

Accepted Answer

Most SBA lenders require a minimum Debt Service Coverage Ratio (DSCR) of 1.25x on the SBA loan alone. This means the business must generate at least $1.25 in cash flow for every $1.00 in annual SBA debt service. Some lenders also evaluate total DSCR including seller notes.

Question 3

How much equity injection does SBA require?

Accepted Answer

The SBA requires a minimum 10% equity injection from the buyer. This can come from personal savings, retirement account rollovers (ROBS), gifts from family, or other non-borrowed sources. Higher equity injection improves your loan approval chances and DSCR.

Question 4

What is an earnout in a business acquisition?

Accepted Answer

An earnout is a portion of the purchase price that is paid to the seller over time, contingent on the business achieving specified performance targets (usually revenue or profit thresholds). Earnouts help bridge valuation gaps between buyer and seller and align incentives during the transition period.

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