Can the business support the loan?
Before you make an offer, check whether the business's earnings can cover your salary, the equipment it needs and the loan that pays for it.
Debt service check
Illustrative only. Assumes one loan for the financed amount with level monthly payments; it ignores seller notes, working capital, taxes on the business's income and closing costs. Lenders set their own coverage requirements.
Buying a business? Test the numbers before you sign.
Our buy-side due diligence checks the seller's earnings, taxes and add-backs, and tells you what the business can really support.
Reading the result
- Below 1.0: the business cannot pay the loan and your salary from its own earnings.
- Around 1.0 to 1.25: tight. One slow season or an add-back that fails can sink it.
- Comfortably above 1.25: room for surprises, though diligence still has to confirm the SDE.
Common questions
What is debt service coverage?
It is the cash the business produces, after paying you a fair salary and setting aside money for equipment, divided by the yearly loan payments. A ratio of 1.0 means the business just covers the loan with nothing to spare; lenders and buyers want a cushion above that.
What is seller’s discretionary earnings (SDE)?
SDE is the profit a single full-time owner takes out of a small business: net profit plus the owner’s salary and benefits, interest, depreciation and one-time or personal expenses run through the business. It is the number most small business listings are priced on, and the one due diligence most often revises.
Why subtract a salary for myself?
If you will run the business, part of the SDE is really your wage. Paying yourself a market salary before measuring what is left for the loan shows whether the business works as an investment, not just as a job.
Can you check whether the SDE holds up?
Yes. Buy-side due diligence tests the seller’s add-backs against tax returns, bank statements and the books, and it is often where a deal’s price changes. See our business acquisition due diligence service.
Let’s talk about your business
An introductory call with our client services team covers your needs, the scope of work and fit. Advice begins once an engagement is in place.