SBA Loan Projections When Buying a Business (SOP 50 10 8.1)

An SBA lender must review your projections, but it relies on the recent past to size the loan and on the forecast to judge whether the business can carry it. A traditional bank relies on the recent past, the forecast and the assets of the business. Either way, the forecast has to be anchored to the recent past, with reasonable assumptions about the future. That holds even if you're paying cash: no lender checks your numbers, so the forecast is how you check that the business can pay the seller note and pay you.

Since October 1, 2026, the SBA's lending rulebook, SOP 50 10 8.1, lays out how an SBA lender reads them: "The Lender must evaluate the Applicant's post-closing financial projections but may not rely on them to meet the DSC requirement." DSC is debt service coverage, the test of whether the business earns enough to make its loan payments. So the loan is sized on what the business has already earned, and the lender still reads your forecast and forms a view of it. Here is how to build projections that hold up.

Do SBA loan projections count toward debt service coverage (DSCR)?

No, but the lender still reads them.

The coverage test looks at history. The lender takes the business's EBITDA (earnings before interest, taxes, depreciation and amortization) from the last fiscal year, or the average of the last two, and divides it by every loan payment the business will make after the purchase. On an acquisition the result must be at least 1.25 to 1, meaning $1.25 of earnings for every $1.00 of payments, and lenders may set their own bar higher. Next year's sales don't enter the math. If past earnings don't carry the debt, "the loan amount must be reduced accordingly," and no projection changes that. Our guide to the new SBA rules for business buyers covers the test in full.

The SBA's own test doesn't subtract equipment spending, but a lender may. The rule lets the lender adjust for "unfunded capital expenditures" if it writes the reason into its credit memo, and some lenders do. Lenders also look at your household. The pay you plan to take has to cover your own debts and living costs, and lenders commonly run a global cash flow, a single test that adds your personal loan payments to the business loan payments.

If your recast ends at SDE, the lender's EBITDA is roughly your SDE less a market salary for whoever runs the business. Most of the gap between the two figures comes from that one adjustment.

The projection is still an important part of the underwriting process, and the lender has to decide whether it holds together. A forecast that assumes 30 percent growth with no detailed path, or a margin that widens just because a new owner arrived, tells the credit officer something about the borrower. A forecast that starts from the returns, states each assumption, and shows the year the seller note starts being paid tells another story.

What a lender can check in your projections

How to build financial projections for an SBA loan

Start from the returns. Base revenue is the latest year as filed, and growth is what the returns show over the years you have, not a target. If you think growth will be faster, say why in a line next to the number.

In your base case, hold margins where the returns put them. Raising prices or cutting costs may well be the right plan, but it hasn't happened yet. Show it as a separate assumption with the reason next to it, and expect the lender to size the loan without it.

Treat capital spending as a real line. Depreciation on the return is a floor for what it costs to keep the equipment going. If the owner stopped replacing equipment before the sale, that bill comes to you, and it comes early. Expect to catch up in your first year or two and put the money in the forecast there.

Plan for costs that rise faster than your prices: wages, materials, insurance, rent. If you can't raise prices to match, show a lower margin in the later years and say why.

Let working capital follow sales. Receivables, inventory and payables, as a percent of revenue from the return's balance sheet, grow with the top line and use cash as they grow.

Show the seller note the way it will actually be paid. A note the lender counts toward your equity has to sit on full standby, with no principal or interest paid for the term of the SBA loan (typically ten years). A note that's being paid is debt, and its payments go into the coverage test. Either way, the forecast should show the year payments begin and what they do to cash that year.

Run a downside case. The lender will ask what happens if sales fall, and a 15 percent drop is a common question, not a rule. Show the result in dollars and as coverage, and say what you'd cut first.

Here's a worked example with round numbers. A business with $400,000 of EBITDA and $270,000 of annual loan payments covers at 1.48 to 1. Now say a seller note on a short standby starts being paid in year three (a note like that doesn't count toward your equity injection), and payments rise to $330,000. The same earnings now cover at 1.21 to 1, under the 1.25 floor. The lender sizes the loan on the first figure. Your forecast should show you've seen the second one coming.

Projections with seller financing and no bank

A buyer paying cash with a seller note faces no coverage test and no rule about projections. The forecast is for you, your CPA and anyone putting money in alongside you, and the seller note is the only debt in it. Show the note's payments from the month they start, what you pay yourself, and a downside case in dollars: what's left after the note and your pay if sales fall. That's the number a spouse or partner asks about first.

What to send the lender

Lenders do their own recast of the seller's tax returns, adjusting reported profit for the owner's pay and one-time items, and use it as their starting point. Start your year one from the same returns so your numbers and the lender's begin in the same place.

Then send:

• The five-year projection, with every assumption listed beside it and where it came from: the returns, your own estimate, or the deal structure.
• A line at the top saying these are your projections as the buyer, not the seller's.
• The downside case.
• If the lender asks for it, the first year or two by month. The SBA doesn't require this, but the lender has to check that working capital lasts the first 12 months, and a monthly view shows exactly that.

Where this fits with Probity

Probity builds a five-year forecast from the tax returns and your deal structure. Sales, margin and capital spending are the drivers, working capital follows sales, the seller note's payments are built in, and cash comes first. Margins and operating expenses stay at a percent of sales unless you change them, which assumes you raise prices as fast as costs rise, and rent is a fixed yearly amount. You can edit every assumption on screen. The Excel download keeps every formula live and adds all five years month by month, with annual totals built from the months, and every page says it's the buyer's own projection. It comes with Deal Desk ($49.99 a month) or with Cash Proof ($995 once, per deal). You need only one.

A forecast is the buyer's own statement of what they expect, built from facts the lender can check. It isn't a valuation, and it isn't an opinion on whether to buy.

Sources

• SBA SOP 50 10 8.1, effective October 1, 2026, Appendix 15 (7(a) changes of ownership): historical and adjusted debt service coverage, ownership compensation, post-closing projections, working capital adequacy over the next 12 months, and seller debt on full standby.