Let's look at some numbers for real SMB deals.

I picked a couple listings from BizBuySell and crunched the numbers to show you what a real SMB deal might look like from the perspective of the buyer. Let's answer the question: does this deal pencil?

There are a thousand variables you can play with in each deal, including tweaking the equity injection, outside equity, seller financing, etc - but for this newsletter I'll just give one example for what a deal might look like. Let's get into it.

A $5.7 million HVAC business

Terms

• Purchase Price: $5,700,000
• SBA Equity Injection (Down Payment): 10%
• Loan Amount: 90% of the purchase price
• Interest Rate: 9.75% (Prime + 2.25%)
• Repayment Term: 10 years
• SBA Guaranty Fee

Real Numbers

• Equity Injection (Down Payment):
  • 10% of $5,700,000 = $570,000
  • You contribute $570,000 as the buyer.
• Loan Amount:
  • 90% of $5,700,000 = $5,130,000
  • However, the SBA 7(a) loan has a maximum of $5,000,000. This means you’d need to cover the excess ($130,000) through additional equity, seller financing, or another funding source. For this example, let’s assume the lender caps the loan at $5,000,000, and you increase your down payment slightly to bridge the gap:
    • Adjusted loan amount = $5,000,000
    • Remaining purchase price = $5,700,000 - $5,000,000 = $700,000
    • Your total equity injection becomes $700,000 (12.28% of the purchase price).
• SBA Guaranty Fee:
  • Guaranteed portion = 75% of $5,000,000 = $3,750,000
  • Guaranty fee = 3% of $3,750,000 = $112,500
  • Financed into the loan, total borrowed = $5,000,000 + $112,500 = $5,112,500
• Total Project Cost:
  • Purchase price + guaranty fee = $5,700,000 + $112,500 = $5,812,500

Monthly payment

• Loan amount with fee: $5,112,500
• Interest rate: 9.75%
• Term: 10 years (120 months)
• Monthly payment = $66,856 (rounded)
• Annual Debt Service:
  • $66,856 × 12 months = $802,272 per year

Does this deal pencil?

Compared to the business’s $800,000 EBITDA, the annual debt payments exceeds cash flow. Lenders typically require a DSCR of 1.15–1.25 (cash flow of $987,000–$1,074,750).

You’d need to negotiate a lower price, boost revenue, cut costs, or extend the term (if real estate is involved) to make this viable.

Let's look at another example: A plumbing business selling for $3 million with $925k of EBITDA.

For this one, let's add in some seller financing to the deal, as well as an outside equity investor.

Terms

• Purchase Price: $3,000,000
• EBITDA: $925,000
• Buyer Down Payment: 10% ($300,000)
• Outside Equity (Investors): 10% ($300,000)
• Seller Note: 5% ($150,000)
  • Assume a 5-year term at 6% interest (typical for seller financing, lower risk than the SBA loan, and subordinated to the SBA loan per SBA rules).
• SBA Loan: Remaining 75% ($2,250,000 before fees)
• SBA Interest Rate: 9.75%
• SBA Repayment Term: 10 years
• SBA Guaranty Fee: 3% of the guaranteed portion (75% of the loan)

Step-by-Step Breakdown

• Financing Structure:
  • Buyer Down Payment: 10% of $3,000,000 = $300,000
  • Outside Equity: 10% of $3,000,000 = $300,000
  • Seller Note: 5% of $3,000,000 = $150,000
  • SBA Loan: 75% of $3,000,000 = $2,250,000 (initial amount before fees)
  • Total = $300,000 + $300,000 + $150,000 + $2,250,000 = $3,000,000
• SBA Guaranty Fee:
  • Guaranteed portion = 75% of $2,250,000 = $1,687,500
  • Guaranty fee = 3% of $1,687,500 = $50,625
  • Financed into the loan, total SBA loan = $2,250,000 + $50,625 = $2,300,625
• Total Project Cost:
  • Purchase price + guaranty fee = $3,000,000 + $50,625 = $3,050,625
  • Covered by: $300,000 (buyer) + $300,000 (investors) + $150,000 (seller note) + $2,300,625 (SBA loan)
• SBA Loan Monthly Payment:
  • Loan amount with fee: $2,300,625
  • Interest rate: 9.75%
  • Term: 10 years (120 months)
  • Monthly payment = $32,250 (rounded)
  • Annual debt service (SBA) = $30,085 × 12 = $361,020
• Seller Note Monthly Payment:
  • Amount: $150,000
  • Interest rate: 6%
  • Term: 5 years (60 months)
  • Monthly payment = $2,900 (rounded)
  • Annual debt service (seller) = $2,900 × 12 = $34,800
• Total Annual Debt Service:
  • SBA loan: $361,020
  • Seller note: $34,800
  • Total = $395,820
• Debt Service Coverage Ratio (DSCR):
  • EBITDA: $925,000
  • Total debt service: $395,820
  • DSCR = $925,000 / $396,820 ≈ 2.33

Does this deal pencil?

Lenders typically require a DSCR of 1.15–1.25. At 2.33, this deal is comfortably viable, leaving room for operational fluctuations or growth investments.

I'm intentionally not linking to the listings I used for these examples because I don't want to make it seem like I am endorsing the second business. Obviously there are a lot of variables and different layers of DD, and the exercise we just did is only one small step in the process.

Take care,

Matthias

🌐 Visit us at pioneercapitaladvisory.com​

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.