Key Takeaways
- Enter the rate from a current lender assumption; this page does not publish a supposedly universal current rate.
- Separate purchase price, working capital, closing costs, fees, and buyer equity in a sources-and-uses schedule.
- Define cash flow the way the reviewing lender defines it, including replacement management and occupancy cost.
- Run rate, earnings, and working-capital sensitivities rather than relying on one payment.
- Recheck policy at closing; the research file flags SOP 50 10 8.1 for an October 1, 2026 effective date.
What the payment formula does
The tool adds entered financed fees to loan principal and applies the standard fully amortizing payment formula over the entered term. At a zero entered rate it divides principal evenly by the number of months. It multiplies the monthly result by 12 and divides entered cash flow by annual debt service to show a simple coverage ratio.
| Output | Calculation | Important exclusion |
|---|---|---|
| Financed principal | Loan amount + entered financed fees | Buyer equity and cash-paid costs |
| Monthly payment | Fully amortizing principal-and-interest formula | Variable resets, interest-only periods, balloons |
| Annual debt service | Monthly payment × 12 | Other business and personal debt |
| Simple coverage | Entered cash flow ÷ annual debt service | Lender adjustments and global cash flow |
The 10-year term is an editable illustration, not a promise that a particular use of proceeds qualifies for that term. The calculator deliberately leaves the rate blank so the user must supply a current assumption.
Build the sources-and-uses schedule first
Purchase price is only one use of funds. Identify inventory, equipment, goodwill, real estate, working capital, deposits, professional fees, lender fees, repairs, franchise transfer costs, and closing expenses. Then identify buyer cash, seller financing, lender proceeds, and any other approved source.
Every source must equal every use. If fees are financed, include them once in principal. If paid from buyer cash, do not add them to the loan. Working capital should be linked to payroll timing, tuition collections, subsidy receivables, deposits, seasonality, and post-close transition needs rather than chosen as a round percentage without a schedule.
Define cash flow available for debt service
Lenders may begin with tax returns and then test supported adjustments. The relevant bridge should include continuing management, market rent when property economics change, recurring maintenance, realistic payroll, and other debt obligations. Seller SDE is not automatically lender cash flow.
For a child-care acquisition, the file should reconcile enrollment and tuition, payroll by role, subsidy receipts by service month, prepaid tuition and deposits, facility costs, inspection history, license-transition timing, and any renovation or ratio-related constraint. A lender can reject a numerically adequate ratio if source records or operational continuity are not credible.
Read the coverage ratio cautiously
The displayed ratio is a transparent division, not a statement that a lender's required threshold is met. Credit policies vary, and underwriters may calculate both business and global cash flow, apply stress cases, limit add-backs, or require reserves.
| Case | Change | Question answered |
|---|---|---|
| Rate sensitivity | Increase entered rate | Can cash flow absorb a less favorable quote or reset? |
| Earnings downside | Reduce available cash flow | What happens if enrollment or margin weakens? |
| Working-capital case | Increase required borrowing or buyer cash | Is the opening balance sheet adequately funded? |
| Management case | Add replacement director or operator cost | Does cash flow survive without seller labor? |
| Facility case | Add required repairs outside loan proceeds | Is there enough liquidity after closing? |
Keep the assumptions dated. A rate quoted today may not be the rate at closing, especially for a variable-rate structure.
Confirm program and lender requirements
SBA describes 7(a) as its primary business loan program and lists acquisition and working-capital uses among eligible purposes, subject to program requirements. That description does not establish eligibility for a specific buyer or transaction. Size, operating status, use of proceeds, credit elsewhere, guaranties, affiliation, injection, collateral, citizenship or residency rules, and lender overlays require current review.
SBA 504 financing follows a different structure and is focused on eligible fixed assets rather than a general substitute for acquisition goodwill financing. When the building and operating company transfer together, model the real estate, business assets, occupancy charge, and debt tranches separately before combining the cash-flow test.
Common mistakes
- Using an online advertised rate instead of a dated lender assumption.
- Treating the seller's asking price as total project cost.
- Entering seller SDE without replacement management or market rent.
- Omitting financed fees from principal or counting the same fee twice.
- Reading the simple displayed ratio as an approval threshold.
- Failing to test license timing, working capital, and payroll before revenue stabilizes.
Frequently asked questions
Does this calculator provide a current SBA interest rate?
No. Enter a current written lender assumption. Rates, allowable structures, fees, and policies can change, and the lender and SBA determine the applicable terms.
Is the estimated payment a loan quote?
No. It is a fully amortizing arithmetic estimate from the entered principal, rate, and term. A lender quote may include variable-rate resets, fees, timing, or other terms.
What cash flow should be used for coverage?
Use the lender-accepted cash flow available for debt service after required normalization, replacement management, occupancy cost, recurring capital needs, and other debt obligations.
Does the tool determine SBA eligibility?
No. Eligibility, use of proceeds, equity contribution, affiliation, size, guaranty, collateral, and credit approval require current lender and SBA review.
Should financed fees be entered?
Enter only fees the lender confirms may be financed. Keep cash-paid fees, closing costs, working capital, and the buyer equity requirement visible elsewhere in the sources-and-uses schedule.
Why should a buyer run higher-rate cases?
A sensitivity case shows whether debt service remains supportable if a variable rate resets or the final quote differs. It does not predict future rates.