Lisa Forrest of Northwest Bank breaks down why the SBA is tightening lending standards amid rising defaults and considering higher loan limits. She explains the new Quality of Earnings requirement for business acquisitions priced at $3 million or more, including how these reports can assess add-backs and working capital. The conversation covers updated rules for seller transitions, seller-note refinancing, debt-service coverage, and the borrower’s minimum personal contribution toward the down payment. Lisa also shares practical challenges in acquiring landscaping, e-commerce, and trade-services businesses, emphasizing the importance of understanding labor, seasonality, and company culture. The discussion closes with guidance on investor participation and trusts, and a reminder that careful preparation can help buyers build a stronger path to business ownership.

Takeaways:

1. Expect more rigorous underwriting: Acquisitions priced at $3 million or more require a Quality of Earnings report, and first-time buyers’ debt-service coverage must include seller-note payments and be based on historical performance—not projections.
2. Plan the equity carefully: The 10% minimum down payment remains, but at least 5% must come from the borrower or guarantor’s personal resources. Investor distributions and trust guarantees are also subject to limits.
3. Look beyond the numbers when assessing a deal: Seller involvement can help or hinder a transition, while labor, seasonality, revenue patterns, and cultural fit can pose significant challenges in industries such as landscaping and trade services.

John Martinka
Jessica Martinka

Contact us via either website or give us a call and be sure to check out our blog pages with new posts weekly.

https://nokomisadvisory.com/
https://www.martinkaconsulting.com/

https://www.gddpodcast.buzzsprout.com
https://www.youtube.com/c/JohnAMartinka/videos

425-515-4903