Free calculator
SBA 7(a) affordability & DSCR calculator
- Cash available for debt service
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- Ceiling 1 — your equity
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- Ceiling 2 — debt service
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- Ceiling 3 — SBA program cap
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- Your realistic price ceiling
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- Implied annual debt service
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- Actual DSCR at that price
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Illustrative arithmetic on figures you supply, not a loan pre-approval or a rate quote. It does not include closing costs, professional fees, or the working capital the business needs on day one — budget for those separately. Everything runs in your browser.
The three ceilings, and why only one of them matters
Ceiling 1 — your equity. If a lender requires a 10% injection, your cash supports a purchase of roughly ten times that cash. Straightforward, and usually the number buyers arrive with.
Ceiling 2 — what the cash flow will carry. Take SDE, subtract a realistic replacement salary, and divide by the required coverage ratio. That gives the annual debt service the business can support. Work backwards through the loan term and interest rate and you get the maximum loan — then add your equity to get the maximum price. This is the ceiling that actually binds on most deals, and the one buyers discover last.
Ceiling 3 — the program cap. The SBA 7(a) maximum loan amount is $5,000,000. It rarely binds on the deals this site is written for, but it is the hard stop.
Your budget is the lowest of the three. If ceiling 2 is the binding one, more cash in the deal will not fix it — the business does not produce enough to carry the debt at that price. That is a price problem or a structure problem, and it is worth knowing before the LOI rather than after the lender says no. The full walk-through is in how much business can I afford.
What this deliberately leaves out
The purchase price is not the cash you need at closing. Closing costs, legal and accounting fees, licence transfers and — above all — the working capital the business needs to operate from day one all sit on top. A buyer who spends every dollar of equity on price arrives at closing owning a business they cannot fund. See working capital in a business acquisition for how much to hold back and how to make the seller deliver it.
Why three ceilings, not one budget
Buyers usually arrive with a single number in mind — what they can put down, or what a broker told them they could afford. In an SBA-financed acquisition three separate constraints bind at once, and only the tightest one matters. This tool computes all three and tells you which is actually binding, because that is the one you have to solve.
| Ceiling | What sets it | How to move it |
|---|---|---|
| Your equity | The injection is 10% of total project cost, and on an Initial Acquisition the SOP states it cannot be reduced or eliminated [1] | More cash, or a smaller project. No lender can waive it for you |
| The cash flow | Debt service coverage must be at least 1.25 on a first acquisition, measured on historical results, and 1:1 on a global basis [1] | Only by the business earning more, or by borrowing less |
| The programme | The 7(a) maximum loan is $5,000,000 [2] | Not movable. Above it you are in a different financing conversation |
What counts as debt service
This is where buyers most often get an optimistic answer from their own arithmetic. The SOP defines debt service as principal and interest on all business debt inclusive of the new SBA loan proceeds [1] — not the acquisition loan in isolation.
So if the business already carries equipment finance, a vehicle loan or a line of credit you are assuming, those payments belong in the denominator. A deal that covers at 1.30× on the acquisition loan alone can fall below the floor once the existing debt is counted, and the lender will count it.
1.25 is a floor, not a target
The 1.25 figure for a first acquisition is an SBA requirement rather than a lender preference (a business expansion, where an existing business buys another, needs 1.15), which is why it is worth knowing before a lender quotes you a number. Individual lenders commonly want more — on a goodwill-heavy deal, or one with concentrated revenue — and that part is their own credit policy sitting above the SBA floor.
Two practical consequences. Run the tool at 1.25 if you want an answer you are unlikely to have to revise downward. And when a lender quotes you a coverage requirement, ask which it is: the SBA floor, or their policy. The answer tells you whether it is negotiable.
The replacement salary
SDE includes the current owner's full compensation, because a buyer replaces that person. Whether that money is genuinely available for debt service depends entirely on what you intend to do:
- You run it and take nothing. The whole SDE is theoretically available — and you have to live on something, so this is rarely the real case.
- You run it and draw a living. Subtract what you need. That is the honest number.
- You hire a manager. Subtract the full market cost of that person, including payroll taxes and benefits. A business that only services its debt when nobody is paid to run it is not a business you can finance.
Rebuild the earnings first with the SDE calculator, then bring the result here. And size the cash separately with the equity injection planner — the injection is calculated on project cost, not on price.
Frequently asked questions
Why are there three ceilings instead of one budget number?
Because three separate constraints bind at once and only the tightest one matters. Your equity injection caps the total price at a given loan-to-value. The business's own cash flow caps the debt it can service at the coverage ratio a lender requires. And the 7(a) program caps the loan itself. Buyers routinely fall in love with a price that clears two of the three.
What DSCR should I use?
For a first acquisition the floor is 1.25, and it is an SBA requirement rather than a lender preference: SOP 50 10 8.1 Appendix 15 requires 1.25:1 on an Initial Acquisition or an Owner Buyout (1.15:1 on a Business Expansion), measured on the last fiscal year-end or a two-year average, and at least 1:1 on a global basis. Projections cannot be relied on to meet it. Debt service there means principal and interest on all business debt including the new loan, not just the acquisition loan. Individual lenders can want more on a goodwill-heavy deal or concentrated revenue — that part is credit policy above the SBA floor. Model with a margin above 1.25, and ask any lender quoting you a number which of the two it is.
Why does the replacement salary get subtracted?
SDE includes the current owner's full compensation because a new owner replaces that person. If you intend to run the business yourself and take no salary, the whole SDE is theoretically available for debt service. If you intend to hire a manager — or if you need to draw a living from the business — that cost comes out before the lender counts cash flow. Entering a realistic replacement salary is the single most common way this calculation gets honest.
Is the rate the calculator uses a real quote?
No. The rate field is yours to set and defaults to an illustrative figure, not a live market rate. SBA 7(a) interest is commonly variable and tied to a base rate plus a spread, so the payment can move after closing. Ask your lender for their current rate and re-run this with it — and consider re-running it a point or two higher to see whether the deal still covers.
Does this account for closing costs and working capital?
Not automatically — and that is a real limitation. The purchase price is not the cash you need. Budget separately for closing costs, professional fees, and the working capital the business needs from day one. A deal that clears every ceiling here can still fail because the buyer arrived at closing with nothing left to operate on.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 U.S. Small Business Administration. SOP 50 10 8.1 — Appendix 15: 7(a) Changes of Ownership. https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
- 2 U.S. Small Business Administration. 7(a) loan program — terms, conditions, and eligibility. https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility
Educational only — not a valuation, a loan pre-approval, or a lender's number. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. The formulas behind this tool are documented on the methodology page.