Can You Afford to Buy This Business? SBA 7(a) DSCR Explained

Two different questions

“What’s this business worth” and “can it afford its own purchase price” are separate tests, and a business can pass the first while failing the second. A fairly priced business financed with too little cash down, too short a loan term, or too large an owner’s draw can still fail to cash-flow the debt that bought it — which is exactly what an SBA lender’s underwriting exists to catch before you sign.

What DSCR actually measures

The Debt Service Coverage Ratio is cash flow available for debt service, divided by annual debt service: DSCR = (SDE − owner’s draw) ÷ annual loan payments. The lender’s real question isn’t whether you personally have good credit or savings — it’s whether the business’s own cash flow, after paying you a living wage, can cover the loan payment on its own. A DSCR of 1.0 means the business breaks exactly even on debt service; lenders require a cushion above that.

The floor is size-dependent — most calculators get this wrong

Per SBA SOP 50 10 8 and Information Notice 5000-877673, the minimum DSCR isn’t one flat number — it depends on loan size:

A rule-of-thumb calculator that applies one flat DSCR minimum regardless of deal size will misjudge smaller acquisitions specifically — the segment most Main Street buyers are actually shopping in.

Rate caps aren’t arbitrary

The interest rate a 7(a) lender can charge is capped by 13 CFR 120.215 — a maximum spread over a base rate (commonly Prime), and the maximum spread shrinks as the loan gets bigger:

• $50,000 or less: up to 6.5% over the base rate
• $50,001 – $250,000: up to 6% over the base rate
• $250,001 – $350,000: up to 4.5% over the base rate
• over $350,000: up to 3% over the base rate

Prime itself moves with the market, so it’s always an editable input with a dated default in our calculator — never a number baked in and quietly going stale.

A seller note changes both sides of the equation

Rolling part of the price into a seller note reduces the SBA loan amount, which reduces debt service — but only if the note is on full standby (no payments until the SBA loan is repaid). A standby note also counts toward the required equity injection (10% of total project cost under SOP 50 10 8), but only up to 50% of the required injection amount — a seller note can reduce how much cash you need at closing, but it can’t replace the entire down payment.

Your own draw counts against cash flow

Cash available for debt service isn’t raw SDE — it’s SDE minus whatever you need to draw to live on. Two buyers looking at the same $150,000-SDE business can get different DSCR results depending on how much salary each needs to pull out first; an affordability check that ignores this is really just checking whether the business historically covered its previous owner’s draw, not yours.

Run your own price, financing, and required draw through the SBA 7(a) Deal Affordability Calculator to see the exact DSCR, the size-correct floor, and the equity-injection math side by side.

This guide is for informational purposes only. It is not financial, legal, or business-brokerage advice, and it is not a formal valuation or appraisal. What a business actually sells for is set by a specific buyer, a specific lender, and a specific deal — no article or calculator can know that in advance, and we say so instead of pretending otherwise.

Last reviewed: July 2026 · Against the SBA's published 7(a) terms, SOP 50 10 8, and Information Notice 5000-877673.