Buy the Earnings, Not the Story.

On October 1 the SBA stopped letting projections carry an acquisition. What a business already earns now has to cover the debt — and the coverage bar moved up at the same time.

By The SUMMANTIS Strategic Advisory Team

Capital Education Series

Every business purchase begins with two numbers. What the business earns today, and what the buyer believes it will earn once they are running it. For years, SBA acquisition lending allowed the second number to do a meaningful share of the work. A buyer with a credible plan — new hours, a second location, the owner’s salary coming off the books — could point at the projection and have it counted.

As of October 1, it cannot.

SOP 50 10 8.1 replaced the prior standard operating procedure for applications receiving an SBA loan number on or after that date. Files numbered through September 30 remain under the old rules, even if they close later. For business acquisitions, it is the most substantial rewrite in roughly a decade, and almost all of it lives in a new Appendix 15.

The central change is one sentence long. Projections may still be reviewed, but they cannot be used to meet the coverage test.

The debt has to be covered by historical earnings. What the business did, not what it will do.

The Bar Moved While the Evidence Narrowed

The second change compounds the first. The coverage floor rose to 1.25x for first-time acquisitions and owner buyouts. Expansions — an operating business buying another in the same or a similar line — stay at 1.15x.

TRANSACTION TYPE	COVERAGE FLOOR	WHAT IT COVERS
Initial acquisition	1.25x	A first-time buyer purchasing a business they do not already own
Owner buyout	1.25x	An existing owner buying out a partner or shareholder
Business expansion	1.15x	An operating business acquiring another in the same or a similar line
ESOP and cooperative	Per Appendix 15	Employee ownership and cooperative structures

Those two changes together are worth more than they look. Consider a business with $400,000 of historical cash flow available for debt service, financed over ten years at roughly ten and a half percent.

At a 1.15x floor, that cash flow supports about $348,000 of annual debt service, which carries roughly $2,148,000 of debt. At 1.25x, the same cash flow supports about $320,000 a year, which carries roughly $1,976,000.

The same business, the same earnings, the same week — and about $172,000 less debt capacity. On a deal where the buyer had planned to put down ten percent, that gap does not come out of the loan. It comes out of their pocket, or out of the price.

Add the projection rule and the effect sharpens. A buyer who was underwriting a $2.4 million purchase on the strength of a credible plan is now underwriting it on last year’s tax return.

Four More Requirements Landed With It

The coverage test gets the attention, but the file itself got heavier.

WHAT ALSO CHANGED	WHAT IT MEANS IN PRACTICE
Independent valuation	Every change of ownership financed with a 7(a) loan now requires an independent valuation from a qualified source — ASA, CBA, ABV or CVA — commissioned by and prepared for the lender, covering the full purchase price. The appraiser must sit outside the loan production function.
Quality of Earnings	An independent Quality of Earnings report is required on first-time acquisitions and expansions where the purchase price reaches $3 million or more, excluding real estate.
Equity injection	A minimum of 10 percent of total project cost on every change-of-ownership type, and it can no longer be reduced.
The 50 percent cap	Seller standby debt, other standby debt and outside investor equity cannot together exceed half of the required injection. A standby note still has to carry no principal or interest for the life of the SBA loan.
A 90-day clock	The personal financial statement window is now 90 days for every owner of 20 percent or more and each proposed guarantor.

The valuation requirement deserves a note. It is commissioned by the lender, not by the buyer or the seller, and the appraiser must be independent of the loan production function. A valuation the seller brings to the table no longer substitutes for one, however well prepared it is.

An Eligibility Change Worth Knowing About

Separately from the acquisition rules, SOP 50 10 8.1 rewrote the chapter formerly titled "Businesses Owned by Non-U.S. Citizens," now "Citizenship and Residency Requirements," and tightened it to a 100 percent standard.

Under the revised chapter, all direct and indirect owners of an applicant or borrower must be U.S. citizens or U.S. nationals with a principal residence in the United States, its territories or possessions, with principal residence defined by reference to IRS Publication 523. Entity owners must be created, organized or incorporated in the United States. Lawful permanent residents are no longer eligible to hold an ownership interest in an SBA borrower.

This is a program eligibility rule, and it applies regardless of the strength of the business or the quality of the file. For an ownership group that no longer fits it, SBA financing is not the path — but conventional bank debt, asset-based lending, equipment financing, seller notes and private credit all sit outside the SBA framework and are unaffected by it. The deal does not necessarily stop. The program does.

Where This Breaks

Four honest limits.

Historical earnings are not a fixed number. What counts as cash flow available for debt service still runs through add-backs and normalization, and that analysis is where a competent package earns its keep. Ruling out projections narrows the evidence; it does not make the arithmetic mechanical.

The 7(a) Small Loan track is not available for any change of ownership, so the lighter documentation path does not apply to a purchase regardless of size.

A seller note can still bridge a gap, but a narrower one. It counts toward the injection only on full standby — no principal, no interest, for the life of the SBA loan — and it shares a 50 percent ceiling with any outside investor equity.

Program rules are revised on a schedule, and this article describes the framework as of publication. Thresholds, categories and coverage floors are confirmed against the current SOP and the lender’s own overlays, which are frequently stricter than the program minimum.

What This Changes About How You Buy

The practical consequence is that the offer and the financing stopped being separate conversations. A letter of intent written against what a buyer expects to earn now describes a deal that cannot be financed through this program, and finding that out takes weeks that the exclusivity period does not refund.

What works instead is unglamorous. Pull the historical cash flow first and run the coverage test against it before naming a price. Build the injection knowing that the seller note and any outside equity together top out at half of it. Expect the valuation and, above $3 million, the Quality of Earnings report, and budget the time they take rather than discovering them at underwriting.

None of this makes acquisitions harder to finance. It makes them harder to finance on optimism. A deal priced against what the business already earns clears the new test about as easily as it cleared the old one.

The buyers who close in this environment are not the ones with the best plan for the business. They are the ones who priced it on what it already does, and brought a structure the earnings could carry.

BEFORE YOU SIGN THE LETTER OF INTENT

Under the new rules, the price a business can carry is set by what it already earns. That arithmetic belongs at the start of a deal, not after a lender runs it. Summantis works with buyers on the structure before the offer goes out — what the earnings support, how the injection is built, and which program fits.

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Educational content only. Not financial, investment, legal, or tax advice. Program requirements described here reflect SBA SOP 50 10 8.1 and related information notices as of publication; figures are illustrative and do not represent an offer of credit, a quotation of terms, or a projection of results. Rates, thresholds, eligibility and lender overlays vary and change over time, and no approval or funding amount is guaranteed.