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Quick reference

The terms, the documents and the loan sequence, on one page. Every guide defines its terms where it uses them; this is the backstop.

Glossary

The terms of art in a small-business sale, defined once, in plain language. A backstop; every piece still defines a term where it first uses it.

Add-backs

Expenses on the books that a new owner would not carry, added back to profit to show the real earnings. The owner's salary, personal costs run through the business, and one-time items such as a lawsuit or a roof. An add-back you can document is money. One you cannot is an argument.

Asset sale

A sale where the buyer purchases the business's assets and takes on only the liabilities named in the agreement. The seller keeps the legal entity. Most small-business sales are asset sales, and the choice between an asset sale and a stock sale changes the tax treatment for both sides.

Business broker (broker)

A person or firm paid, usually a percentage of the sale price at closing, to value a business, prepare the materials, find and screen buyers and manage the process. What a broker does and does not do is its own piece. Whether to use one is the seller's decision.

Cash at close

The money a buyer must bring on the day of closing. The down payment, closing costs and, in a well-planned deal, the working capital the business needs in its first weeks. It is larger than the down payment alone, which is the part most first-time buyers plan for.

Closing

The day the purchase agreement is signed, the money moves and the keys change hands. Everything before it is preparation; everything after it is the transition.

Confidential information memorandum (CIM)

The document that describes a business for sale to a buyer who has signed a non-disclosure agreement. The numbers, the history, the customers, the people and the reason for selling. Reading one critically is a buyer skill; writing an honest one is a seller skill.

Debt service coverage ratio (DSCR)

How many times over the business's earnings cover its loan payments. A lender sets a floor and will not lend on a deal below it. The ratio is the reason a business's earnings, not its revenue, set what a buyer can borrow.

Diligence (due diligence)

The period, usually under a letter of intent, in which the buyer verifies what the seller has told them. The money, the people, the leases, the customers and what the business carries. It ends with the buyer closing, renegotiating or walking away.

Earnout

A part of the price paid later and only if the business hits agreed targets after the sale. A buyer using an SBA-backed loan cannot offer one, because the program does not allow a price that depends on future performance.

Entrepreneurship through acquisition (ETA)

Buying an existing business to run it, as an alternative to starting one or staying employed. The umbrella term for search funds, self-funded searchers and independent sponsors.

Equity injection

The buyer's own money in an SBA-backed purchase, as a share of the total project cost. What counts toward it, including a seller note on standby, is set by the SBA's rules and changes when the rules change.

Exclusivity

A period, usually set in the letter of intent, during which the seller agrees not to negotiate with other buyers. It gives the buyer time to complete diligence and arrange financing without the deal being sold out from under them.

Going hard

Buyer slang for the point at which a deposit becomes non-refundable. Before it, a buyer can walk away and get the deposit back. After it, walking away costs the deposit.

Independent sponsor

A person who finds a business to buy and then raises the money from investors deal by deal, rather than raising a fund first. One of the buyer types a seller may meet.

Indication of interest (IOI)

A short, non-binding letter from a buyer stating a price range and rough terms, sent before a letter of intent. It tells the seller whether the two sides are in the same neighborhood before either spends much time.

Letter of intent (LOI)

The offer document. It sets out the price, the structure and the main terms, and starts diligence. Most of it does not bind either side; some parts, usually exclusivity and confidentiality, do. Which parts bind is the first question for a buyer's attorney.

Multiple

The number of years of earnings a buyer pays for a business. A business that sells for two and a half times seller's discretionary earnings of $200,000 sells for $500,000. The multiple is a judgment about risk: how confident a buyer can be that the earnings keep arriving after the owner leaves.

Non-disclosure agreement (NDA)

The agreement a buyer signs before seeing anything that identifies a business for sale. It is what lets a seller explore a sale without their crew, customers or competitors finding out.

Personal guarantee

A buyer's personal promise to repay a business loan if the business cannot. SBA-backed loans require one from every owner with a meaningful stake. It is the reason a buyer's house is part of the conversation.

Quality of earnings (QoE)

An accountant's review of a business's earnings, deeper than an audit of the books, to confirm that the stated earnings are real, recurring and correctly adjusted. A buyer's lender may require one above a certain deal size.

Retrade

A buyer coming back after diligence to ask for a lower price or different terms than the letter of intent set. Sometimes justified by what diligence found. Sometimes a tactic. The seller's piece on what to do when a buyer comes back with a lower number covers both.

Rollover as business startup (ROBS)

A structure that lets a buyer use retirement savings to fund a business purchase without the early-withdrawal penalty. Whether and how it counts toward an SBA equity injection depends on the current rules.

SBA 7(a) loan

The Small Business Administration's main loan program. The SBA guarantees part of a loan a bank makes, which is why banks will lend on small-business purchases at all. The rules for it live in the SOP.

SBA 504 loan

The SBA program for buying real estate and heavy equipment, made with a certified development company alongside a bank. Relevant when the building comes with the business.

Search fund

A structure in which a searcher raises money from investors to fund the search for a business, then raises more to buy it. Investors get a stake; the searcher runs the company.

Seller note (seller financing)

Part of the price the seller carries. The buyer signs a promissory note and pays the seller over years, with interest, out of the business's earnings. Common in small-business sales, and the reason the seller's piece on carrying a note exists.

Seller's discretionary earnings (SDE)

The total benefit one owner-operator takes out of a business in a year. Profit, plus the owner's salary, plus the add-backs. The number a buyer is actually paying for, and the first number a lender asks for.

Standard operating procedure (SOP)

The SBA's rulebook for its loan programs. It sets what counts as the buyer's contribution, what a seller note has to look like, and how long it must sit on standby. It has changed several times in recent years, and any piece that depends on it carries the version it was written under.

Standby

A condition a lender places on a seller note that counts toward the buyer's contribution: the seller receives no payments on it for a set period, or in some versions of the rules for the life of the bank loan.

Stock sale (entity sale)

A sale where the buyer purchases the company itself, taking on its assets and its liabilities together. Less common in small-business sales than an asset sale, and different in its tax treatment.

Transition period

The weeks or months after closing when the seller stays on to introduce the buyer to customers, hand over what only they know and let the crew get used to the new owner. How long is set in the deal.

Working capital

The cash a business needs to run between paying its bills and being paid by its customers. Payroll runs before customers pay, and in most sales the money customers already owe goes to the seller, so a buyer opens on day one needing working capital of their own.

The documents

What a buyer asks for and when, and what a seller gathers before being asked. One list, viewed from either side.

The same list serves both sides. A seller who gathers these before a buyer asks has a calmer sale and a wider field of buyers who can actually pay. A buyer who asks for them in this order looks like someone who has done this before.

Nothing with a name on it moves before a non-disclosure agreement. Everything after that moves in stages, and a serious buyer does not ask for stage-three paperwork in a first conversation.

Before an NDA

What the public description of a business for sale carries. No name, no address, nothing a competitor or a customer could recognize.

Document Why a buyer asks
The trade, the region and the rough size Whether it is the shape of business they are looking for
Years in business How long the customers and the reputation took to build
Asking price, or a range Whether the two sides are in the same neighborhood
Whether the owner stays on, and for how long What the handoff looks like

After an NDA

What a serious buyer reads before deciding whether to make an offer. The confidential information memorandum, if there is one, and the numbers behind it.

Document Why a buyer asks
Profit and loss statements, three years, by month Earnings, and the shape of the year. A July statement for a heating company is just July.
Tax returns, three years The numbers a lender will believe
Balance sheet What the business owns and owes
A schedule of add-backs The real earnings, and whether each add-back can be documented
Customer list by revenue share, without names Whether one customer holds the keys
The lease, or the deed Whether the business has a home after closing, and on what terms
Equipment and vehicle list, with age and condition What has to be replaced soon
Staff by role and tenure, without names Who holds the customer relationships, and who might leave
Licenses, permits and bonding What has to transfer, and what cannot
Contracts with customers and suppliers What survives a change of owner

Under a letter of intent

Diligence. The buyer verifies everything above and asks for what proves it.

Document Why a buyer asks
Bank statements That the profit and loss statements are real
Accounts receivable and payable, aged What is owed and what is overdue on the day of closing
Payroll records What the people actually cost, and whether anyone is misclassified
Insurance policies and claims history What the business carries: liability, workers' compensation, auto, benefit plans
Litigation, liens and judgments What could follow the business to the new owner
Corporate documents: formation, ownership, minutes Who actually owns it and can sign
A quality of earnings report, where required The lender's or the buyer's independent check on the earnings

What the buyer brings

The lender asks the buyer for their own paperwork at the same time, and a first-time buyer is often surprised by how much.

Document Why the lender asks
Personal financial statement What the buyer owns and owes, since they will personally guarantee the loan
Resume, and a short plan for the business Whether the buyer can run what they are buying
Tax returns, three years Income and history
Proof of the cash for the down payment, and where it came from The equity injection has to be real and has to be the buyer's
A signed letter of intent The lender underwrites a deal, not an idea

The SBA loan, start to finish

The stages of an SBA-backed business purchase, on one page, in the order they happen.

Most small-business purchases are financed with a loan the Small Business Administration guarantees in part, made by an ordinary bank. The bank runs the process. The SBA sets the rules, in a document called the standard operating procedure, usually shortened to SOP. The rules move, so this page carries the version it was written under.

How long each stage takes depends on the bank, the deal and the time of year. Ask the lender for their current turnaround before relying on any figure, and get it in writing.

1. Get prequalified

Before looking seriously. The buyer gives a lender a personal financial statement, a resume and tax returns. The lender says roughly what size of deal the buyer could borrow for. Not a commitment. A number to plan around, and something a seller or broker takes seriously.

2. Find the business and agree the price

The buyer signs a non-disclosure agreement, reads the confidential information memorandum, meets the seller and makes an offer. The signed letter of intent is what the lender underwrites; nothing moves at the bank before it exists.

3. Apply

The full package. The buyer's own documents, the business's financials for three years, the letter of intent, the purchase structure and where every dollar of the buyer's contribution comes from. What counts as the buyer's contribution, including whether a seller note on standby counts, is set by the SOP.

4. Underwriting

The bank checks the business's earnings against the loan payments, using a debt service coverage ratio with a floor the bank sets. It orders an independent business valuation. It verifies the equity injection. Questions come back to the buyer and, through the buyer, to the seller. This is where a deal that looked fine on a napkin finds out whether it clears.

5. Commitment letter

The bank agrees to lend, subject to conditions. The conditions are the checklist for everything that follows: the entity, the lease, insurance, the purchase agreement in final form.

6. Closing conditions

The buyer stands up the legal entity and gets an employer identification number. The lease is assigned or a new one signed. Insurance is bound, including term life insurance on the buyer assigned to the bank. The purchase agreement is negotiated to final. Licenses that must transfer are applied for. The seller's diligence responses close out.

7. Closing

The purchase agreement is signed. The bank funds the loan, the buyer's contribution is wired, and the seller is paid. Any seller note is signed at the table and, if it counts toward the buyer's contribution, goes on standby from that day.

8. After closing

The bank's file stays open on the terms in the commitment letter: the life insurance stays assigned, the personal guarantee stands, and the seller note stays on standby for whatever period the SOP required. The transition period with the seller runs alongside.

Written under SOP 50 10 8.1, effective 1 October 2026. The rules have moved more than once in recent years; confirm the version in force with the lender before relying on them.

Tools

A tool that structures your own answers is teaching. None of these decides anything for you.