The SBA has tightened its underwriting standard for business acquisition loans. Going forward, new acquisition debt must clear a minimum Debt Service Coverage Ratio (DSCR) of 1.25x — up from 1.15x — measured as EBITDA divided by all future debt obligations, including existing business debt plus the new loan. This is a business-only test: the business must support itself.
Here’s the optionality worth being aware of: the DSCR of 1.25x can be demonstrated using either the most recent year-end financials OR the average of the past two years, whichever presents the stronger picture. So a business coming off one uneven year can still qualify if its two-year average holds up.
The flexibility comes from which financial period is used to test the business’s own coverage:
That’s the real story here: a stronger standard, but flexibility for well-qualified buyers — especially first-timers whose business had one softer year but a solid two-year track record.
Thinking about financing a business acquisition, buyout, or ownership transition? Let the Bankwell team run your numbers by starting an inquiry here.
This is current as of the publication date and is for informational purposes only. SBA requirements are subject to change. Loan eligibility, terms, and approval are based on individual circumstances and are subject to Bankwell Bank's credit approval, underwriting, and applicable SBA requirements.
