Resources & Insights

The Acquisition Blog

Underwriting walkthroughs, deal structures, and buying guides for serious SBA buyers.

Deal Structuring

What Is DSCR and Why It Makes or Breaks Your SBA Deal

The Debt Service Coverage Ratio is the single number that SBA lenders look at before approving your loan. Most buyers don't know what it is until it kills their deal. Here's what you need to know.

The one ratio your lender cares about most

DSCR—Debt Service Coverage Ratio—measures how much cash the business earns relative to the debt you'll take on to buy it. The formula is simple:

DSCR = Net Operating Income ÷ Total Annual Debt Service

SBA lenders typically require a minimum DSCR of 1.25x. That means the business must generate $1.25 for every $1.00 of loan payment. Anything below 1.0x and the business can't even cover its own debt—an immediate disqualifier.

Why buyers miss this

Most buyers focus on the asking price and ignore the cash flow math. They fall in love with a $2M business, secure SBA financing, and only after closing realize the monthly debt payment consumes nearly everything the business earns. Luxe Acquisition's DSCR calculator models this in real time so you know your position before you ever sign a letter of intent.

How to improve your DSCR before applying

Three levers move DSCR in your favor: a larger down payment (reducing loan principal), a longer loan term (spreading payments out), or a lower purchase price. Our scenario engine lets you test all three simultaneously so you can find the structure that makes the deal work.

April 10, 2025 5 min read
Due Diligence

SDE vs. EBITDA: Which Number Should You Actually Trust When Buying a Business?

Sellers use both SDE and EBITDA to justify their asking price. Knowing the difference—and which add-backs are legitimate—could save you from overpaying by six figures.

SDE is for owner-operators. EBITDA is for investors.

Seller's Discretionary Earnings (SDE) adds back the owner's full compensation and personal expenses to net income—it represents what one owner-operator takes home. EBITDA strips out interest, taxes, depreciation, and amortization, but leaves management compensation in place—it represents what a hired management team would earn.

For SBA buyers planning to run the business themselves, SDE is the more meaningful number. For buyers installing a GM and managing passively, EBITDA better reflects true returns.

The add-back game sellers play

Every seller has a list of "add-backs"—expenses they claim are non-recurring or owner-specific: a personal car, a family member's salary, one-time legal fees. Some are legitimate. Others inflate SDE artificially. Luxe Acquisition's True Earnings calculator scores each add-back with a confidence level, so you know which ones lenders will accept and which ones they'll reject outright.

April 22, 2025 4 min read
SBA Strategy

Seller Financing + SBA Loan: How Stacking These Two Structures Wins Deals

The most competitive buyers in any market aren't using SBA loans alone. They're stacking seller financing on top to reduce injection, win at price, and close faster. Here's how to model it.

Why sellers accept seller financing

Sellers who finance part of the deal get better tax treatment on their gains, earn interest on the note, and signal confidence in the business—because they're the last to get paid if things go wrong. For buyers, seller financing typically comes at lower interest rates than SBA loans and reduces how much equity injection you need on day one.

The SBA rules on seller notes

The SBA allows seller notes to count toward the buyer's equity injection under specific conditions: the note must be on full standby for the first 24 months of the SBA loan term. That means no principal or interest payments to the seller during that window. This is a significant cash flow advantage in the critical first two years post-acquisition.

Modeling the blended debt picture

Most deal calculators only model one loan at a time. Luxe Acquisition is built specifically to handle layered financing—showing you the combined annual debt service of your SBA loan and seller note together, so you see the true blended DSCR and know exactly where you stand before a lender does.

May 5, 2025 6 min read