Enter your deal parameters to check if the business cash flow can support the debt at the SBA's 1.25x floor and find the maximum loan amount that keeps you above it.
Total purchase price including goodwill
SBA 7(a) minimum is 10%
SBA 7(a) is typically WSJ Prime + 2.75–3.5%
SBA 7(a) max: 10 yr (working capital), 25 yr (real estate)
Use seller's adjusted EBITDA or owner's SDE
Meets SBA floor (1.25x)
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Debt Service Coverage Ratio (DSCR) measures whether a business generates enough cash flow to cover its annual debt obligations. SBA preferred lenders use it as the primary go or no-go signal on acquisition deals.
For SBA acquisition deals, annual cash flow is typically the seller\'s adjusted EBITDA or owner\'s seller discretionary earnings (SDE). Annual debt service is the proposed monthly loan payment multiplied by 12.
The SBA does not publish a hard DSCR minimum, but most preferred lenders require 1.25x as their floor. Strong applications come in at 1.35 to 1.50. Below 1.15, the deal is rarely financeable without compensating factors.
Three acquisition scenarios with the math worked out. Run your own numbers in the calculator above.
Debt Service Coverage Ratio equals annual cash flow divided by annual debt service. For SBA acquisition deals, lenders typically use the seller's adjusted EBITDA or owner's seller discretionary earnings (SDE) as the cash flow figure. Annual debt service is the proposed monthly loan payment multiplied by 12. A DSCR of 1.25 means the business produces $1.25 of cash flow for every $1.00 of debt service. SBA underwriters generally require 1.25x as the minimum, with 1.35 to 1.50 preferred.
The SBA standard operating procedure (SOP 50 10) does not set a hard DSCR minimum but expects lenders to demonstrate that the business can service the proposed debt. In practice, SBA preferred lenders require a minimum DSCR of 1.15 to 1.25 on most acquisition deals. Lenders building extra cushion target 1.35 to 1.50. Below 1.15, most deals are declined unless there are strong compensating factors like substantial collateral or a high-credit guarantor.
A DSCR of 1.50 or higher is comfortable. 1.25 to 1.49 is workable but tight. 1.00 to 1.24 means the business barely covers its debt service and has no cushion for revenue dips. Below 1.00 means the deal cannot pay itself, which is rarely financeable. For franchise acquisitions specifically, lenders often want DSCR above 1.35 because franchise royalties and fees compress free cash flow.
Three levers move DSCR. First, reduce the loan amount by increasing the down payment, which lowers monthly debt service. Second, negotiate a longer loan term: a 10-year SBA 7(a) term has lower monthly payments than a 7-year term on the same balance. Third, negotiate the purchase price down so the loan needed is smaller relative to cash flow. Each option trades a different cost: more cash upfront, more total interest, or harder negotiation with the seller.
EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure of business cash flow. DSCR is a ratio that uses cash flow as its numerator. EBITDA tells you how much money the business generates. DSCR tells you whether that money is enough to cover the proposed debt. For SBA acquisition loans, lenders typically use SDE (seller discretionary earnings, which adds the owner's salary back to EBITDA) as the cash flow input to the DSCR calculation.
Most SBA lenders calculate both. Business DSCR uses only the business cash flow against the new SBA loan payment. Global DSCR adds the borrower's personal income and personal debt service to the calculation. SBA SOP 50 10 8 emphasizes that the business must be able to service its own debt, but lenders also evaluate global cash flow to assess overall borrower capacity. For acquisition deals where the buyer is taking salary from the business, global DSCR matters because the salary draw is part of the cash flow plan.