A small business is worth buying when its cash flow pays a manager's wage, covers the loan with room to spare and still leaves you a return on the money you put in. Put in the deal and see all three.
Purchase price is SDE times the multiple, unless you type an asking price. Your down payment and the seller note are shares of that price, and the bank or SBA loan is whatever is left.
Each loan is paid monthly on a normal amortising schedule: payment = loan x r / (1 - (1 + r)^-n), where r is the yearly rate divided by 12 and n is the number of months. Loan payments a year is twelve of those for the bank loan plus twelve for the seller note.
Cash before debt is SDE minus the market salary and the yearly reinvestment. DSCR is cash before debt divided by loan payments a year. Cash left for you is cash before debt minus loan payments. Cash-on-cash is cash left divided by your down payment, and payback is your down payment divided by cash left.
At the exit, the sale is SDE times the exit multiple, minus selling costs, minus whatever is still owed on both loans after that many years. Equity gain is that figure minus your down payment. SDE is held flat for the whole period, so growth you plan to add is not assumed.
SDE (seller's discretionary earnings) is profit with the owner's own pay and perks added back. That is the right number for pricing, and the wrong one for judging the deal, because somebody has to run the business. If you pay yourself nothing, the business looks like it covers its loans when in fact it only covers them by using your unpaid labour.
Put in what you would have to pay a general manager to do the job. If the deal only works when that figure is low, you have bought yourself a job with a loan attached.
Under SBA SOP 50 10 8.1, in force from October 1, 2026, a loan to buy a business must show debt service coverage of at least 1.25x on historical earnings; most other 7(a) loans need 1.15x. At 1.25x the business makes $1.25 of cash for every $1 of loan payments, so a 20% fall in that cash leaves nothing over. Lenders measure it on EBITDA, which is close to SDE minus a manager's salary, so their figure may differ a little from this one.
Check the line that cuts SDE by 20%. If cash left turns negative there, a bad year would come out of your savings, and with an SBA loan you will have signed a personal guarantee. This calculator is general information, not financial, legal or tax advice.
Start with the seller's verified SDE, subtract a market salary for whoever runs it and the yearly reinvestment the business needs, then subtract a year of loan payments. If what is left is positive with room to spare, and the deal still covers its loans when SDE falls 20%, the business can carry the debt.
SBA rules set 1.25x as the minimum for a loan to buy a business (1.15x for most other 7(a) loans). A buyer's own comfort line is usually higher, because the lender's ratio assumes past profit holds. Check the ratio at a 20% lower SDE as well.
There is no standard figure, and a high one usually means a lot of debt. Compare it with what the same down payment would earn in an index fund, then remember the business return also pays for your risk, your personal guarantee and your time.
No. SDE is profit with the owner's salary, perks and one-off costs added back, so it shows what one owner-operator could take out before debt. Subtract a salary for running the business before you compare it with loan payments.