Will the deal clear SBA coverage on last year's numbers?
From October 1, 2026, an initial acquisition has to cover 1.25 to 1 on historical earnings, with no growth story available to bridge the gap. This runs the same arithmetic a lender will, including the add-back rules most calculators leave out.
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Where deals actually break
Most coverage calculators divide EBITDA by a payment and stop. The number that decides a file is the one left standing after the earnings figure is tested, and that is where the new rules bite hardest.
A seller's add-back schedule is no longer an input a lender can simply accept. Each adjustment has to be justified as prudent, necessary and supportable, and that justification has to live in the credit file. Try entering an adjustment above without a reason: it drops out of the adjusted figure, which is exactly what happens in underwriting.
For deals at or above three million dollars, an independent quality of earnings report is now mandatory and its findings drive the coverage calculation. What the new rules require covers the whole picture, with the source text cited throughout.
Frequently asked questions
What debt service coverage ratio does the SBA require?
From October 1, 2026, an initial acquisition has to clear 1.25 to 1. Business expansions stay at 1.15 to 1, and owner buyouts and ESOP or cooperative transactions are 1.25 to 1. Initial Acquisition is the default category: a deal is only treated as something else if the lender documents why in the credit memo.
Can I use projections to reach the ratio?
Not on a change of ownership. Coverage has to be satisfied from the last fiscal year end or the average of the last two. You can still adjust those historical figures, but a plan to grow into the number no longer qualifies a deal that does not cover today.
Which adjustments can I make to the earnings figure?
The SOP names unfunded capital expenditures, non-recurring income, distributions, distributions for S-Corp taxes, seller discretionary expenses and ownership compensation, and it also allows savings that can genuinely be realized through the transaction. The constraint is documentation: the lender has to outline why each adjustment is prudent, necessary and how it can be supported.
Why does my own compensation matter to a business loan?
Because where ownership compensation is adjusted, the SOP requires a global cash flow analysis showing the principals can meet their obligations on the proposed compensation, at one to one. An owner-operator drawing modestly and an absentee owner paying a market-rate general manager produce very different answers, and the gap between them is worth modelling before you settle on a price.
Is this a credit decision?
No. It is an estimate on the figures you enter. A lender underwrites from evidenced financials, which is what a quality of earnings analysis establishes. Use this to find out early whether a deal is worth taking further.
Coverage looking tight?
The gap between a seller's adjusted EBITDA and one a lender will underwrite is where most acquisition deals reprice. We can tell you which side of that line yours is on.