Deal Check: Will a Lender Finance Your Business Sale?

What the Deal Check measures

Debt service coverage ratio: the formula lenders use

Debt service coverage is cash flow available for debt service divided by the annual payments on the new debt. Cash flow here is trailing earnings, minus the replacement-manager salary you enter, plus add-backs only when you mark them documented. Annual debt service is twelve times a fully amortizing monthly payment on the senior loan. The senior loan is the asking price, minus the down payment, minus any seller note. On an SBA-sized band the loan stops at a $5 million planning cap. If you leave the rate at the placeholder, the tool says so on the field. Change the rate, the term, the down payment, or the note and the payment changes with them. A result with no debt service is reported as no debt, because dividing by zero is not a coverage ratio.

The pass lines on this page are planning notes, not a lender's credit memo. CreateKAE treats 1.25x as the line many SBA 7(a) change-of-ownership loans are described as needing on historical earnings, 1.35x as a preferred cushion, and 1.15x as a figure sometimes discussed for expansion. The comparison uses a tolerance of 0.0001, so a ratio a ten-thousandth under the line still fails. Confirm the current SOP and the lender's own policy with the lender who would actually fund the buyer. Nothing on this page is a quote, an approval, or a commitment.

Your earnings gap and max financeable price

The earnings gap is the extra annual cash flow that would bring coverage to the line. For 1.25x it is annual debt service times 1.25, minus cash flow available for debt service, and it cannot go below zero. The same arithmetic at 1.35x is the preferred gap. The max price inverts the payment formula. The tool asks what loan, at your rate and term, produces debt service equal to your cash flow divided by 1.25, then adds back a standby note and grosses up for the down payment. If that loan would break the $5 million cap, the published max price uses the cap and the page says so. This is a ceiling implied by the inputs you typed. It is not an appraisal of the business and it is not the price a buyer will offer.

The negotiation haircut is separate from coverage. It is a size-band share of the asking price from CreateKAE's planning model: 20 percent at a $500,000 asking price, stepping down to 10 percent at $50 million. It illustrates a concession from asking price to a baseline close. The value-at-risk range starts at that haircut. When coverage is under 1.25x, the high end also adds a financing-gap cost (the uncovered share of the senior loan times 25 percent) and a probability-weighted cost of a deal that dies: a 30 percent chance of death, times a 15 percent cost of the baseline close, times a 30 percent chance the deal is coverage-constrained. When coverage clears 1.25x, the high end equals the haircut. Both ends are illustrations from assumption set 2026-10-14.1.

The six sale-readiness factors

Coverage can look fine while the file still falls apart. The readiness score is a free self-check on six factors, equally weighted: financial clarity, add-back documentation, owner dependence, customer and vendor concentration, recurring or contracted revenue, and operations maturity. Each answer is 100, 50, or 0. The score is the average, rounded. The three lowest marks are listed as the gaps to close first. The example starts every factor in the middle so the page does not pretend a hypothetical listing has finished books. A lender does not use this score. You do, to see whether the earnings in the coverage math can be defended.

Worked example: a $1M listing that fails at 1.10x

Hypothetical illustration. Rate 10.5% and a 10-year term are assumptions, labeled on the rate field as an SBA-style placeholder as of October 14, 2026, not a live quote. Asking price $1,000,000. Trailing revenue $1,200,000. Trailing SDE $220,000. Replacement manager $60,000. No add-backs. Down payment 10 percent. No seller note. Industry left on the general main-street band.

On the base case the buyer puts $100,000 down and borrows $900,000. Cash flow is $160,000 after the manager's salary. Annual debt service rounds to about $145,700. Coverage prints at 1.0979x, which is about 1.10x and fails 1.25x. About $22,200 of additional annual cash flow reaches 1.25x. About $36,700 reaches 1.35x. The price that supports 1.25x on these terms rounds to about $878,000. A seller note of $50,000 on full standby cuts the senior loan to $850,000 and moves coverage to about 1.1625x, still short of 1.25x, because the note adds no debt service while it is on standby. The same $25,000 entered as a documented add-back, with no note, lifts cash flow to $185,000 and coverage to about 1.2695x, which clears 1.25x. The same add-back left undocumented does not change cash flow at all.

A second illustration from the planning model

The spreadsheet behind CreateKAE's value model uses a different coverage test, and it is worth seeing beside the live tool so the two numbers are not confused. Hypothetical inputs: asking price $1,200,000, earnings $400,000, an 18 percent size-band discount, and the base scenario. Buyer-credited and lender-credited lift are each $38,800. Pro forma close is $1,259,246.30. The five-layer total is $315,229.58. The model's post-lift DSCR is 1.2524x. That ratio starts from a 1.10x stress case and then applies the modeled lift to a cash-flow percentage of earnings. It is not the payment on a rate and term you type. The Deal Check above uses your loan terms. Both illustrations are hypothetical. Neither is a completed engagement or a closed sale.

How lenders read your numbers

Historical earnings versus a pro forma

Practitioner summaries of SBA SOP 50 10 8.1, effective October 1, 2026, describe the 1.25x test as a test of historical earnings. A projection, a savings plan, and a pro forma the seller hopes to grow into do not fill the minimum by themselves. That is why the free result on this page never gives you credit for work you have not documented. The gated report does show a planning-model lift, and it labels the remaining gap after that lift. If the gap is still positive, the model is telling you the story is still short. These sentences are planning notes drawn from practitioner summaries available on October 14, 2026, including discussions published by Womble Bond Dickinson and Starfield & Smith. They are not CreateKAE's independent reading of the SOP, and a lender should confirm them before anyone relies on them.

Which add-backs get credit

The tool credits an add-back only when the documented box is checked. That matches the way the work is sold: no inflated add-backs. A personal expense that is on a receipt, a one-time legal bill that will not recur, and an owner salary above a real manager's wage can be discussed. A round number with no invoice cannot. Guides that walk through a recast profit and loss are still to be published. Until they are, the rule on this page is the whole policy: undocumented dollars stay out of cash flow. Kae Mansour has been on the borrower side of this math. Building a restaurant and a car wash from the ground up meant underwriting a business before it had a long track record, and running gas stations for about twenty years meant living with the debt payment after the closing dinner was over. An owner's hours are not free to the buyer. If the owner is the manager, the salary to replace that job comes out before anyone talks about coverage.

Seller notes on full standby

In this tool, a seller note marked on full standby adds nothing to annual debt service. That is how CreateKAE reads current summaries of the standby rule: the note is not a payment the buyer has to make while the senior loan is being tested. A note that is not on full standby is amortized here on the same rate and the same term as the senior loan. That shared coupon is a placeholder so the page can show the direction of the math. Your note's real rate, interest-only period, and term will differ. Say so when you use the figure with a lender or a broker.

Assumptions and limits

Industry multiples in the full report are editable placeholders. They are not licensed transaction data and they are not a database of closed deals. The size-band discount can be replaced later by an industry override. Every override is empty today, so the haircut follows the asking-price band. The calculator runs in the browser from these rules. It does not call a model, score you with a black box, or store the teaser. Numbers leave the browser only when you submit the report form or the booking form. The full report stays on the screen. A PDF is not part of this version.

Your deal does not clear 1.25x. Now what?

Three levers move the ratio, and they are the same levers a serious buyer will push on. Price: a lower asking price shrinks the loan and the haircut together. Structure: a larger down payment, a longer term when the collateral supports it, or a seller note on full standby changes the payment without inventing earnings. Documented earnings: a recast that ties every add-back to a source document, and a manager's wage that is honest, changes the numerator. Projected savings do not. If the business is already listed or under a letter of intent, the engagement that matches is Sale-Ready Numbers, usually a few weeks of defense rather than a year of operating work. If you are six to twenty-four months from a listing, the match is Value Build: fix the leaks, then document them before a buyer's calculator ever opens.

A 30-minute call is the next step when you want a person to say whether the file is worth the fee. Book the call.

For brokers

Run the same check on a listing before a buyer does. The free result is enough to see whether coverage, the haircut, and the readiness gaps are going to become the re-trade. CreateKAE does not list the business, solicit buyers, or negotiate the price. The broker partner program, including referral, co-brand, and white-label options, sits on the home page. An embeddable version of this calculator is planned and is not on this site yet. Until it is, send a client to this page or bring the listing to a call.

Questions