See whether a deal's cash flow covers its debt. Enter the SDE, your SBA loan, and an optional seller note to get the debt service coverage ratio against the 1.25x SBA floor.
SBA rate 9.8% over 10 years, seller note 6.0% over 5 years.
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DSCR stands for debt service coverage ratio. It's the single number a lender looks at first, and it answers one question. Does the business throw off enough cash to make its loan payments? You get it by dividing annual cash flow (SDE for most SMB acquisitions) by total annual debt service. A 1.50x DSCR means the business earns 1 dollar and 50 cents for every 1 dollar of debt it owes that year.
The math is simple. The judgment is in the inputs. Use the SDE the seller can actually defend, not the rosy add-back number on the teaser, and include every dollar of debt the deal carries, including a seller note. We do that for you below.
SBA 7(a) lenders require a minimum DSCR of 1.25x. Below that, the deal doesn't get approved, full stop. But hitting the floor exactly isn't where you want to be. Most lenders prefer 1.35x to 1.50x because it gives the business room to absorb a slow quarter, a key customer leaving, or a rate move without missing a payment.
For context on today's numbers, Prime sits at 6.75% in June 2026, and a typical acquisition loan over 350,000 dollars prices around 9.5% to 9.75%. SBA 7(a) acquisition loans run a 10-year term, and buyers usually put down 10% to 15%. Plug your real rate into the calculator above, because a higher rate raises your annual debt service and pushes DSCR down.
Here's the part searchers get wrong. A seller note on full standby (no payments for the first 2 years, common on SBA deals) still counts toward your DSCR calculation. The SBA wants to know the business can service all of its debt, not just the bank loan, so the note's amortizing payment goes into the denominator even while it's deferred. That's why this calculator adds the seller note's annual payment to total debt service. If you model a deal as if the note is free, you'll overstate your coverage and get surprised at the lender.
The flip side is good news. A standby note lets the seller help finance the gap without draining your cash at closing, and a well-structured note can be the difference between a deal that pencils and one that doesn't.
