Ed Weeks Jr. breaks down new SBA lending rules starting October 1, 2026. First-time buyers now need 1.25× debt-service coverage instead of 1.15×. Deals over $3 million require an independent quality-of-earnings report that reconciles bank deposits, books, and tax returns. Seller notes only count toward down payment if they're on full standby with no payments during the SBA loan.
Welcome to Weeks Weekly. I'm Ed Weeks Jr. This week, paper before price. If there's any chance your buyer uses an SBA loan, the rules for that loan change on October 1st. The bank now has to underwrite your actual results from the last year or 2, and it can't lean on the buyer's projections to get there. Your history now sets the ceiling on what an SBA buyer can borrow to pay you. Here's what changed and 5 things to do about it. I'm Ed Weeks with Weeks Consulting Group. The SBA's new lender rulebook is called SOP 5010 8.1. The final version came out September 25th. Change 1: If your buyer is taking over a company for the first time, the lender now needs debt service coverage of 1.25 times, up from 1.15. That means your earnings have to cover all the buyer's debt payments with a 25% cushion. It's measured on your last fiscal year or the average of your last 2. The lender reviews the buyer's projections but can't rely on them to hit the number. Change 2: If the purchase price is $3 million or more, the lender has to get an independent quality of earnings report. It's done for the lender, never by or for the seller. And it ties your bank deposits to your books and your tax returns. It also has to document every add-back and look at customer concentration. Change 3: Seller notes. A note only counts toward the buyer's down payment if it's on full standby, meaning no payments of principal or interest for the life of the SBA loan. A note that pays you along the way becomes more debt your earnings have to cover. So here's the practical effect: a great growth story still helps the buyer believe in the business; it won't carry the loan. And money got more expensive at the same time. On September 16th, the Fed raised rates a quarter point to a range of 3.75% to 4%, its first hike since 2023. When buyers can borrow less, more of your price tends to move into structure—seller notes, earnouts, rollover equity. Private equity buyers feel it too. GF data showed average debt on new platform deals falling to 2.9 times EBITDA in the second quarter from 3.4. Meanwhile, a BNY Wealth survey of 354 deal advisors found only 48% say sellers are well-prepared when the buyer's review begins. The bar went up, and about half of sellers weren't ready for the old one. 5 things I'd get on paper this quarter. 1, tie out your bank statements, books, and tax returns for the last 2 years and the trailing 12 months. That's the test the lender's review will run. 2, prove every add-back. If you can't document it, assume it won't count. 3, know your customer concentration and write down why your biggest customers will stay. 4. Set your normal working capital from a year or 2 of monthly balance sheets, before a buyer proposes a number for you. 5. Decide your seller note terms before anyone asks, and know how standby versus paying terms would affect an SBA buyer. None of this requires you to sell; it keeps your options open: keep, grow, finance, sell, or partner. The rules are new, so confirm specifics with your lender. Economics before introductions, paper before price. Sources are in the description. I'm Ed Weeks Jr. More at edweeksjr.com.
