A Regalis Capital Resource

Most people who want to buy a business have no idea how the money actually moves. They hear "SBA loan" and picture walking into a bank, filling out forms, and getting handed a check. That is not how it works. Not even close.

This guide breaks down every piece of an SBA acquisition deal. The loan. The seller note. The equity injection. The math. The negotiation. The things that go wrong. We are giving this away because we sell execution, not information. If you read this and feel confident doing it yourself, go for it. If you read it and realize you want a team that does this every day, you know where to find us.

Either way, you will walk away understanding deal structure at a level that puts you ahead of most first-time buyers and most brokers.

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Section 1: The Anatomy of a Deal

Every SBA acquisition deal has the same basic building blocks. The numbers shift, the percentages move, the terms change depending on the deal. But the anatomy is always the same.

Here are the pieces:

Purchase Price. This is the headline number. What the seller wants for the business. It gets all the attention, but it is actually the least important number in the deal. Two buyers can pay the exact same purchase price and walk away with wildly different deals depending on how the money is structured.

SBA Loan. This is the government-backed loan that covers the majority of the purchase price. Typically 70% to 85% of the deal. The SBA does not lend the money directly. They guarantee a portion of the loan so that a bank will make it. This is what makes small business acquisitions possible without bringing millions in cash to the table.

Seller Financing. This is money the seller agrees to receive over time instead of at closing. Usually 15% to 30% of the purchase price. When structured correctly, seller financing is the single most powerful tool a buyer has. It reduces cash at close, creates transition leverage, and de-risks the entire deal.

Equity Injection. This is the buyer's cash contribution. Under current SBA rules, the minimum is 5% out of your pocket. That is it. On a $1M deal, that is roughly $50,000 to $52,000. Not $500,000. Not $300,000. $52,000.

Working Capital. This is the cash left in or added to the business so it can keep operating after the ownership change. It covers payroll, supplier invoices, and operating expenses during the transition. Working capital is non-negotiable. It must be built into the deal from the very first offer.

Closing Costs. Legal fees, SBA guarantee fees, appraisals, title searches. Typically 3% to 5% of the purchase price. Here is the part most people miss: closing costs get rolled into the SBA loan. They do not come out of your pocket separately.

When you put it all together, a deal is not "I need $1 million in cash to buy a $1 million business." A deal is a capital stack. Multiple sources of capital, layered together, each with its own terms and timeline. The skill is in how you stack them.

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Section 2: SBA 7A Lending

The SBA 7(a) loan program is the single most powerful financing tool available for Main Street business acquisitions. It exists specifically to help individuals buy small businesses without needing private equity money or a family fortune.

How It Actually Works

The SBA does not lend you money. Read that again. The SBA is a guarantor. They tell a bank: "If this borrower defaults, we will cover 75% to 85% of the loss." That guarantee is what convinces the bank to make a loan they would never make otherwise.

Without the SBA guarantee, no bank would lend you $850,000 to buy a small business with $50,000 down. The math does not work for them. The SBA makes it work.

The Numbers

What the SBA Loan Covers

The SBA loan does not just cover the purchase price. It also rolls in:

• Closing costs (legal, appraisal, title)
• SBA guarantee fee
• Lender origination fee
• Working capital (in many cases)

So on a $1M deal where 85% is SBA-financed, the actual loan amount might be $890,000 to $990,000 once closing costs are rolled in. This is normal. This is by design.

The Personal Guarantee

This is the part nobody wants to talk about. Every SBA borrower who owns 20% or more of the buying entity must sign a personal guarantee. No exceptions. No loopholes. No LLC structure removes it. No attorney trick makes it disappear.

Here is what the personal guarantee actually means: if the business fails and you default on the loan, the SBA can come after your personal assets. Your home. Your savings. Your other investments.

Here is what it does not mean: the government does not send agents to seize your house the day you miss a payment. The vast majority of SBA borrowers never trigger the guarantee. And when defaults do happen, the SBA frequently negotiates settlements at well below the original loan balance through Offer in Compromise programs.

The personal guarantee is the trade-off for being able to buy a million-dollar business with $52,000 down. It is a reasonable trade when you structure the deal correctly. It becomes dangerous only when combined with a bad deal and a bad operator.

Who Qualifies

SBA lenders care about three things:

1. Your personal financial profile. Credit score (680+ preferred, 650 hard floor for most lenders), liquidity, and debt obligations.
2. The business itself. Cash flow, industry, stability, and growth trends.
3. The deal structure. DSCR, equity injection, seller financing terms, and collateral.

You do not need an MBA. You do not need decades of experience. You do not need to have owned a business before. A majority of Regalis Capital partners are first-time buyers: doctors, firefighters, corporate professionals, tech workers. What you need is a clean personal financial profile and a deal that makes sense on paper.

What Disqualifies You

• FICO below 650 (some lenders have hard floors)
• Recent bankruptcy or unresolved tax liens
• Unfiled tax returns (hard stop)
• Prohibited industries (gambling, lending, speculative real estate, among others)
• Absentee ownership plans (SBA requires you to be actively involved)

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Section 3: Seller Financing

Seller financing is the most misunderstood and most powerful piece of deal structure. Most first-time buyers either do not know it exists or think it means the seller is "doing you a favor." Neither is true.

What Seller Financing Is

Seller financing means the seller agrees to receive a portion of the purchase price over time instead of all cash at closing. They become a lender. They carry a note. You make payments to them according to the terms you negotiate.

On a $1M deal with 20% seller financing, the seller gets $800,000 at closing (from the SBA loan) and carries a $200,000 note that you pay over time.

Why Sellers Agree to It

Sellers agree to carry financing for several reasons:

• The deal does not work without it. Most SBA lenders want to see seller financing as evidence that the seller believes in the business.
• Tax benefits. Installment sales allow sellers to spread capital gains over multiple years, potentially saving tens of thousands in taxes.
• Higher price. A seller who carries 20% on favorable terms can often negotiate a higher headline price than one who demands all cash. This is the "meet on price, win on terms" dynamic.
• It is market standard. 84% of our deals close with full-standby seller notes. This is not unusual. This is how deals get done.

Full Standby vs. Partial Standby

This is where it gets interesting.

Full standby means the seller gets zero payments on their note for the entire term of the SBA loan. Typically 10 years. After the SBA loan is paid off, the seller note becomes payable. During those 10 years, the seller receives nothing on their note.

Full standby is the gold standard. It is what we target on every deal. Here is why it matters so much:

1. It counts as equity injection. Under SBA rules, a full standby seller note can satisfy up to 5% of the required 10% equity injection. That drops the buyer's out-of-pocket cash from 10% to 5%.
2. It eliminates a second monthly payment. You are already paying the SBA loan. A full standby note means you are not also cutting a check to the seller every month.
3. It creates transition leverage. Once the seller gets all their cash at closing, there is zero financial incentive for them to help with the transition. Deferred money is leverage. If the seller disappears during the transition, you have contractual mechanisms tied to the note.

Partial standby (split notes) is used when the seller will not agree to full standby. The seller note gets split into two separate promissory notes. One portion goes on full standby (counts as equity injection). The other portion amortizes with regular payments starting immediately.

Split notes are used on roughly 30% to 40% of deals. They are not a failure. They are a structuring tool for when full standby is off the table.

Interest Rates on Seller Notes

Interest rates on seller notes vary deal by deal. The goal is to keep them as low as possible, because you are already paying interest to the bank on the SBA loan. Adding interest to a standby note means the seller's deferred balance grows over 10 years. On a $125,000 note at 7% interest over 10 years, that balloon payment grows from $125,000 to roughly $212,500. At a low or zero rate, the math is dramatically better. This is why the interest rate on the seller note is one of the most important terms to negotiate, even when it is "just" a deferred number.

For amortizing seller notes (the non-standby portion of a split note), interest rates typically sit at or near the applicable federal rate, roughly 4% to 5%. Never pay 10% interest on a seller note. There is no reason for it.

The Long Game on Seller Notes

Here is something almost nobody talks about. After 5 or more years, when the seller's note finally comes due or when you have the cash to settle it early, you have leverage. Most sellers at that point will accept 50 to 60 cents on the dollar in cash rather than wait for the full amount. They have been waiting years. They want closure. You get a discount on money you already negotiated favorable terms on.

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Section 4: Equity Injection

Equity injection is the buyer's skin in the game. It is the cash (or cash-equivalent) you bring to the closing table. Under current SBA Standard Operating Procedures, the minimum total equity injection is 10% of the deal. But only 5% has to come from you.

The 5% Minimum

Here is how it breaks down:

• 5% from the buyer (cash, retirement rollover, HELOC, or investor capital)
• 5% from a full standby seller note (counts as equity injection under SBA rules)
• Total: 10% equity injection

On a $1,000,000 deal, that means $50,000 from you and $50,000 from the seller note. Your actual cash at close is approximately $50,000 to $52,000.

The people telling you that you need $500,000 to buy a business have never closed an SBA deal.

Where the 5% Comes From

Cash savings. The most straightforward source. You wire the money from your personal account.

401(k) or IRA Rollover (ROBS). ROBS stands for Rollover for Business Startups. It lets you use retirement savings to fund the equity injection without paying early withdrawal penalties or taxes. You set up a C-Corporation, create a new 401(k) plan within it, roll your existing retirement funds into the new plan, and the plan invests in the C-Corp's stock. The C-Corp uses those funds for the acquisition. Setup takes 3 to 4 weeks and runs parallel to due diligence.

Home Equity Line of Credit (HELOC). A HELOC is the only acceptable debt instrument that counts as liquidity for SBA purposes. You can draw on your home equity to fund the injection. Credit cards, personal loans, and other unsecured debt do not work. Zero-percent credit cards do not work. They actually make your financial profile worse.

Investor Capital. You can bring in a partner or investor to fund the equity injection. All they need to provide is a commitment letter of funds (a one-page document). The investor typically gets 10% to 15% equity in the buying entity for putting in the 5%. Be careful here. An investor with a 2x step-up and preferred payments can cost 3x or more of the original investment by the time you buy them out. Seller finance is almost always cheaper than investor capital.

Gifted Funds. Family money with proper documentation showing it is a gift, not a loan.

The Hidden Number: Post-Close Liquidity

The 5% gets you to the closing table. But SBA lenders also require post-close liquidity of 15% to 20% of the purchase price. This is not money you spend. It is money you must prove you have access to after the deal closes. Think of it as a safety net.

On a $1M deal:

• Cash at close: ~$52,000
• Post-close liquidity required: $150,000 to $200,000

That $150,000 to $200,000 can include 401(k) balances, retirement accounts, savings, stocks, bonds, and HELOC availability. It does not all have to be liquid cash. But you need to prove it exists.

Rule of thumb: if you have 20% of the deal size in total liquid or semi-liquid assets, you can do the deal. $200,000 in total assets means you can pursue a $1,000,000 acquisition.

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Section 5: Deal Math Walkthrough

Let us take a $1,000,000 deal and break down every dollar. This is the math your broker will not show you and the math most courses never teach because the people selling them have never structured a seller note.

The Setup

• Purchase price: $1,000,000
• Business generates $250,000 per year in EBITDA (at a 4x multiple)
• Deal structure: 85% SBA / 10% seller finance (full standby) / 5% buyer cash

Sources and Uses

Sources of Capital (Where the Money Comes From)

Uses of Capital (Where the Money Goes)

What the Buyer Actually Pays Out of Pocket

Closing costs ($40,000) are rolled into the SBA loan. They are real costs, but they do not come out of your pocket at closing.

Monthly Cash Flow After Acquisition

That $109,000 is before owner salary, taxes, and reserves. If you are stepping in as the operator, your salary comes from this number. If you are hiring a manager ($80,000 to $120,000), that comes from here too.

The Cash-on-Cash Return

You put in roughly $52,000. The business generates approximately $109,000 per year after debt service (before your salary). Even after paying yourself $80,000, you are looking at roughly $29,000 in additional cash flow on a $52,000 investment. That is a 55% cash-on-cash return in year one. And the SBA loan pays down every month, building your equity in the business.

Compare that to putting $52,000 in an index fund and hoping for 8% annual returns.

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Section 6: DSCR Explained

DSCR stands for Debt Service Coverage Ratio. It is the single most important number in determining whether a deal works. If you remember one metric from this guide, make it this one.

What It Is

DSCR measures how comfortably the business can cover its debt payments. The formula is simple:

DSCR = Total Annual Cash Flow / Total Annual Debt Service

If the business generates $250,000 in EBITDA and total debt payments are $125,000 per year, the DSCR is 2.0x. That means the business makes twice what it needs to cover its debt. There is a 50% buffer before things get uncomfortable.

The Tiers

Why 2x Matters

At 2.0x DSCR, roughly half your cash flow goes to debt service and half is yours. That sounds like a lot going to debt, but consider what that 50% buffer gives you:

• Room to absorb a 20% to 30% revenue decline without missing payments
• Cash to handle emergency repairs, equipment failures, or unexpected costs
• Ability to pay yourself a real salary without stressing the business
• Margin to invest in growth (marketing, hiring, new equipment)

At 1.25x, a single bad month can mean you cannot make payroll and your loan payment. That is not a business. That is a tightrope walk.

How DSCR Affects Deal Structure

When the DSCR does not hit 2.0x at the seller's asking price, you have three options:

1. Negotiate the price down until the math works
2. Increase seller financing to reduce the SBA portion and lower monthly payments
3. Walk away if neither option gets you above 1.5x

This is exactly the "meet on price, win on terms" strategy. If the seller will not budge on price, push for more seller financing on standby terms. That reduces your monthly SBA payment, which improves DSCR, which makes the deal work at the same headline price.

The Interest Rate Stress Test

Always run your DSCR calculation at a worst-case interest rate. SBA rates are variable (WSJ Prime + 1.5% to 2.75%). If rates spike to 12%, does the deal still work? If the answer is no at 12%, it is not a good deal. It is a deal that only works in a low-rate environment, and you are signing a 10-year personal guarantee.

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Section 7: "Meet on Price, Win on Terms"

This is how negotiation actually works in SBA acquisition deals. Most first-time buyers think negotiation means hammering on price. Offer $800,000 on a $1,000,000 listing. Go back and forth. Split the difference. That approach loses more deals than it wins.

Why Price Fixation Is a Trap

When you push hard on price, two things happen:

1. You insult the seller. If the ask is $1.5M and you offer $900,000, you are not negotiating. You are telling the seller their life's work is worth 60 cents on the dollar. They stop returning your calls.
2. You lose the terms. Even if you knock the price down, the seller tightens everything else. Less seller financing. Shorter transition. No working capital concessions. You "saved" $100,000 on price but lost $200,000 in structural value.

How Experienced Buyers Negotiate

The headline price is a vanity metric for the seller. Many sellers care more about being able to say "I sold for $X" than about the actual terms. Use this.

The approach: Meet them at or near their asking price. Then structure the deal so every other variable works in your favor.

Here is what you negotiate:

• Seller financing percentage. Push from 10% to 20% or 25%. Every dollar on seller finance (especially on standby) is a dollar that does not hit your monthly SBA payment.
• Standby terms. Full standby, 10 years, the lowest interest rate negotiable. This is the single most valuable term in the deal.
• Working capital. Get 2 to 6 months of operating expenses left in the business or funded through the SBA loan.
• Transition period. 6 to 12 months of seller involvement with financial teeth tied to the seller note. Not a handshake promise. Contractual enforcement.
• Earnout components. If the seller insists on a high price, tie a portion to post-sale performance. They get their number, but only if the business actually performs as advertised.

A Real Example of This in Action

A deal is listed at $1.85M. The business does $1.19M in annual cash flow. The seller will not budge on price.

Instead of fighting on price, the deal gets structured as:

• 80% SBA ($1,572,000)
• 20% seller finance ($92,500 on a 10-year note at 7%)
• Buyer injection: $185,000
• 1 month of working capital included
• 3-month transition

The buyer paid the seller's price. But the structure (80/20 split, seller carrying a note, transition included) is where the real value was created. The DSCR works. The cash-on-cash return works. The deal works.

If the buyer had fought the price down to $1.5M, the seller likely would have demanded 90% or 100% cash at close. The buyer would need more cash up front, have no seller financing safety net, and lose transition leverage. "Winning" on price would have produced a worse deal.

The Formula

Price is what you pay. Structure is what you get.

A $1M deal at 85/15 with full standby seller note, 6 months of working capital, and a 12-month transition is a fundamentally different deal than a $900,000 deal at 100% SBA with no seller note and a 30-day transition. The cheaper deal costs you more in every way that matters.

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Section 8: 3 Real Deal Examples

These are real deals. Names and identifying details are removed. The numbers are verified. Each one shows how deal structure works in practice, not theory.

Deal 1: Non-Emergency Medical Transport Company

The situation: A buyer looking for a service business with strong recurring demand. Non-emergency medical transport (NEMT) is essential, not optional, which makes it recession-resistant.

The deal:

Why this deal works:

• DSCR is strong. $450,000 in cash flow against roughly $170,000 in annual debt service gives a DSCR above 2.5x.
• The seller note is on full standby with no payments during the SBA loan term. No second monthly payment.
• $62,500 out of pocket to acquire a business generating $450,000 per year.
• After debt service and a reasonable owner salary, this buyer is cash-flow positive from day one.

The takeaway: $1.25 million purchase. $62,500 out of pocket. $450,000 a year in cash flow. The seller note is 10-year standby with no payments during the SBA term. This is how the majority of properly structured SBA deals look.

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Deal 2: Painting Contractor (20+ Year Established Business)

The situation: A buyer wanted an operationally mature business with a manager already in place. Something that could run with limited day-to-day involvement from the owner.

The deal:

Why this deal works:

• $1.19M in cash flow on a $1.85M purchase is a 1.55x multiple. That is a disciplined buy.
• Even with the larger injection ($185,000), the cash-on-cash return in year one is extraordinary.
• The business has 20+ years of operating history and a manager already in place. This is not a turnaround.
• The seller note at 7% is higher than the typical low-rate target, but the deal works because the cash flow is so strong.

The takeaway: $1.85 million purchase price. $185,000 out of pocket. $1.19 million a year in cash flow. When the business has 20 years of history and a manager running operations, the math speaks for itself.

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Deal 3: Portfolio Strategy (Two Deals, One Couple)

The situation: A husband and wife team. He took early retirement from logistics. She was on track to retire within a year. They did not want a single acquisition. They wanted to build a portfolio.

Deal 1:

Deal 2 (closed 4 months after Deal 1):

Combined trajectory: $1,500,000 in EBITDA across two businesses.

Why this matters:

• The first deal generated enough cash flow that the second deal's equity injection (5%) came from profits of the first business. No additional personal capital required.
• 11 months from first deal close to owning two businesses generating over $1M in combined annual cash flow.
• This is the compounding strategy. Deal 1 funds Deal 2. Deal 2 funds Deal 3. Each acquisition makes the next one easier.

The takeaway: First deal: $523,000 a year in cash flow. 4 months later, second deal: $508,000 a year. Funded with 5% from the first deal's profits. Now generating over $1M in combined annual cash flow. That is what a portfolio strategy looks like when the deal structures are right.

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Section 9: What Can Go Wrong

Knowing how deals work is important. Knowing how deals break is more important. Here are the structural mistakes that cost buyers real money.

Mistake 1: Buying on SDE Without Discounting

SDE (Seller Discretionary Earnings) is the most commonly cited number in business listings. It is also the most unreliable. SDE adds back the owner's salary, personal expenses, and "one-time" costs to inflate the appearance of cash flow.

The problem: most of those addbacks are fake.

• "Owner's salary" addback ignores that you still need to pay someone to do that job. If the replacement cost of a general manager is $100,000, that $300,000 SDE just became $200,000 in real cash flow.
• "One-time expenses" that happen every single year are not one-time. They are operating expenses with a rotating label.
• "Personal expenses" that actually drive revenue (meals with clients, travel to job sites) are business expenses, not addbacks.

The fix: Apply a 15% to 50% discount to every listed cash flow figure before doing any analysis. Then subtract operator replacement cost ($80,000 to $150,000 for sub-$5M businesses). The number you are left with is real free cash flow. Run all your deal math on that number, not the broker's number.

Mistake 2: Ignoring DSCR

Buyers fall in love with a business and ignore the coverage ratio. They rationalize: "I will grow the business and the numbers will improve." Maybe. But your loan payments start month one. Growth takes time. If the DSCR is 1.2x on day one, one slow month means you cannot make the payment.

The fix: Never do a deal below 1.5x DSCR. Target 2.0x. If the math does not work, either restructure (more seller financing, lower price) or walk.

Mistake 3: Accepting a Short Transition Period

Brokers default to 30 to 90 days of seller transition. That is not enough. The seller knows where every customer relationship lives, which employees are flight risks, which vendors need managing, and where the operational bodies are buried. When they leave after 60 days, all of that knowledge walks out the door.

The fix: Negotiate 6 to 12 months of transition depending on owner involvement. Tie the seller note to transition compliance with specific reduction clauses. If the seller fails to complete customer introductions, the note reduces by 25%. If they stop showing up during the full-time window, 50% reduction. Financial teeth, not handshake promises.

Mistake 4: Not Including Working Capital

Most buyers budget for the down payment and forget about working capital. Then they close the deal and realize they need to make payroll in two weeks, pay three vendors, and cover insurance premiums. They scramble. They tap credit cards. The business starts on the wrong foot.

The fix: Build working capital into the deal from the LOI stage. Target 2 to 6 months of operating expenses. Push for it to come from the seller (left in the business) or from the SBA loan (funded working capital). Working capital should be a day-one conversation, not a day-90 surprise.

Mistake 5: Paying Too High a Multiple

Multiples above 4x on real cash flow require aggressive deal structure to justify. Above 5x is almost always a bad deal for Main Street businesses.

The fix: Target 2x to 3.5x on actual (discounted, post-operator-replacement) cash flow. If the asking price implies a higher multiple, either negotiate the price down or restructure the terms (more seller finance, longer standby, more working capital) until the effective cost makes sense.

Mistake 6: Not Getting Pre-Qualified First

Some buyers spend months sourcing and analyzing deals before discovering they have a borrower problem. Bad credit, unresolved tax issues, insufficient liquidity. All that work was wasted.

The fix: Get pre-qualified with an SBA lender before looking at a single deal. If the lender says no to you as a borrower, nothing else matters. The business is irrelevant until you fix the borrower side.

Mistake 7: Using Max Approval as a Target

Your lender approved you for $2,000,000. That is not good news. That is not a target. That is the ceiling with zero margin for error. Buying at your max approval means you are maximally leveraged with no buffer.

The fix: Think of your max approval as a boundary, not a destination. A buyer approved for $2M should be looking at $1M to $1.5M deals where the math is comfortable, not stretching to the absolute limit.

Mistake 8: Treating Due Diligence as a Checkbox

Due diligence is not a formality. It is your primary protection mechanism. And it should cost you almost nothing in the early stages.

The fix: Follow a two-phase approach. Phase 1 (Internal, costs nothing): review tax returns, P&Ls, and bank statements; site visits, employee conversations, customer and vendor analysis. Most deals die here. Phase 2 (External, real money, only after Phase 1 passes): Proof of Cash ($5,000 to $7,000) is the primary external check, with Quality of Earnings as an optional add-on when the deal warrants it, plus legal review (~$5,000 retainer). Spend no money until the deal earns it.

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Section 10: Glossary of Terms

Addback. An expense added back to net income to calculate SDE or adjusted cash flow. Legitimate addbacks include interest, depreciation, amortization, and actual owner salary above market replacement cost. Illegitimate addbacks include personal expenses the owner ran through the business.

Asset Purchase. The standard deal structure for SBA acquisitions (95%+ of deals). The buyer purchases the business assets (equipment, inventory, customer lists, brand, goodwill) rather than the legal entity itself. This protects the buyer from inheriting unknown liabilities.

Capital Stack. The combination of all funding sources used to acquire a business. In an SBA deal, the capital stack typically includes the SBA loan, seller financing, and buyer equity injection.

CIM (Confidential Information Memorandum). A document prepared by the business broker that presents the business for sale. Includes financial summaries, business history, growth opportunities, and asking price. Remember: the CIM is a sales document, not a financial document. It was built to sell you, not inform you.

Closing Costs. Fees associated with completing the acquisition. Includes SBA guarantee fee, lender origination fee, legal fees, appraisal, and title search. Typically 3% to 5% of purchase price. Rolled into the SBA loan.

DSCR (Debt Service Coverage Ratio). Total annual cash flow divided by total annual debt service. Measures how comfortably the business covers its loan payments. Target: 2.0x. Floor: 1.5x.

Earnout. A portion of the purchase price tied to future business performance. The seller gets paid more if the business hits certain revenue or profit targets post-sale. Useful when buyer and seller disagree on valuation.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). A standardized measure of operating profitability. More reliable than SDE because it does not inflate cash flow with personal expense addbacks.

Equity Injection. The buyer's cash contribution to the deal. Minimum 5% of purchase price under current SBA rules (with a full standby seller note covering the other 5% of the required 10%). Sources include cash, ROBS, HELOC, and investor capital.

Exclusivity Period. The period after LOI signing during which the seller cannot negotiate with other buyers. Standard: 60 to 90 days. Non-negotiable. Without it, you spend thousands on due diligence while the seller shops your offer.

Free Cash Flow. The cash actually available to the business owner after all operating expenses, debt service, taxes, and capital expenditures are paid. The most honest measure of what a business puts in your pocket.

Full Standby. A seller note structure where no payments are made until the SBA loan is fully repaid (typically 10 years). Full standby with the lowest possible interest rate is the target for every deal.

HELOC (Home Equity Line of Credit). A line of credit secured by your home equity. The only acceptable debt instrument that counts as SBA liquidity. Can be used for equity injection.

LOI (Letter of Intent). A 2- to 4-page document submitted to the seller outlining the proposed deal terms. Non-binding except for exclusivity, confidentiality, and governing law. The starting point for negotiation.

Multiple. The ratio of purchase price to annual cash flow. A business priced at $1M generating $250,000 in EBITDA trades at a 4x multiple. Target range: 2x to 3.5x on real (discounted) cash flow.

Personal Guarantee (PG). A legal commitment where the borrower pledges personal assets as collateral for the SBA loan. Required for all owners of 20%+ of the buying entity. Unavoidable. Manageable with proper deal structure.

Post-Close Liquidity. The cash and liquid assets you must prove you have access to after closing. SBA lenders require 15% to 20% of the purchase price. Includes savings, retirement accounts, stocks, bonds, and HELOC availability.

Proof of Cash. A line-by-line, month-by-month reconciliation of reported income against bank statements. The primary external DD check, typically $5,000 to $7,000. If cash does not tie to what the seller claimed, walk away.

QoE (Quality of Earnings). An optional financial analysis performed by an independent CPA firm that verifies the business's reported earnings. Used when a specific deal warrants it, not on every transaction. Proof of Cash is the primary external DD check.

ROBS (Rollover for Business Startups). A structure that allows you to use retirement funds (401(k), IRA) to fund a business acquisition without paying early withdrawal penalties or taxes. Setup takes 3 to 4 weeks.

SBA 7(a). The primary SBA loan program used for business acquisitions. Maximum loan: $5,000,000. Term: 10 years. Interest: variable (WSJ Prime + 1.5% to 2.75%). Personal guarantee required.

SDE (Seller Discretionary Earnings). Net income plus owner salary, personal expenses, interest, depreciation, and amortization. The most commonly cited and least reliable cash flow metric in business listings. Always discount 15% to 50% before using in analysis.

Seller Financing / Seller Note. A portion of the purchase price the seller agrees to receive over time. The seller effectively becomes a lender. Standard target: 15% to 30% of purchase price on a 10-year full standby note at the lowest interest rate negotiable.

Split Note. A seller financing structure where the seller note is divided into two promissory notes. One on full standby (counts as equity injection), one on amortizing terms with regular payments.

Stock Purchase. Buying the legal entity (corporation or LLC) rather than its assets. Rare in SBA deals (less than 5%) because the buyer inherits all known and unknown liabilities. Only used when asset transfer would disrupt critical contracts.

Working Capital. The cash available to cover day-to-day operating expenses after closing. Includes payroll, vendor payments, insurance, and other recurring costs. Must be negotiated into the deal. Target: 2 to 6 months of operating expenses.

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This guide is provided as a free educational resource by Regalis Capital. The information is based on real deal experience across 294 accepted offers a year and 171,000+ deals sourced annually. It is not legal, financial, or tax advice. Consult qualified professionals before making acquisition decisions.

Questions? Visit regaliscapital.com