Deal Affordability Calculator
Determine how much you can afford to pay for a business. Comprehensive deal analysis based on your capital and target returns.
Deal Affordability Calculator
Estimate your maximum purchasing power for SBA acquisitions
Typical: 20-25% (values: 2.0-2.5)
Standard SBA 7(a) term
Standard lender requirement
How it works: This calculator estimates your maximum purchasing power based on available down payment cash and annual income. The limiting factor (whichever is lower) determines your maximum offer price.
Note: These are estimates. Actual loan approval depends on business financials, assets, collateral, and lender requirements.
How to Determine Deal Affordability
Step 1: Determine Available Capital
Calculate how much equity you can invest in the business. This includes:
- Personal savings and liquid assets
- Retirement account withdrawals (with tax implications)
- Lines of credit or personal loans
- Investment partners or investors
Most lenders require 10-20% of purchase price as equity investment.
Step 2: Determine Financing Capacity
Identify how much you can borrow based on the business's ability to support debt:
- Business operating income (EBITDA or SDE)
- Minimum DSCR requirement (typically 1.25x)
- Loan term and interest rate
- Maximum LTV (loan-to-value) ratio
Example: If business has $100k SDE and DSCR must be 1.25x, max annual debt service is $80k.
Step 3: Set Return Expectations
Determine what return on investment (ROI) you need from the deal:
- Conservative: 15-20% annual ROI (lower risk appetite)
- Moderate: 20-30% annual ROI (balanced approach)
- Aggressive: 30%+ annual ROI (higher risk tolerance)
Higher expected returns mean you need lower purchase prices relative to earnings.
Financing Terms Impact
Longer Loan Term
Lower monthly payments = higher affordability, but more total interest paid
Higher Down Payment
Less debt to service = easier to qualify, but higher initial capital needed
Lower Interest Rate
Reduces monthly payments = higher affordability and better profitability
Common Pitfalls
Overleveraging
Borrowing maximum amounts leaves no cushion for business fluctuations
Insufficient Due Diligence
Relying on seller financials without verification can lead to overpayment
Ignoring Growth Assumptions
Assuming revenue growth that doesn't materialize can destroy returns
Working Backward from Returns
A common approach is to work backward from your desired return:
1. Determine acceptable purchase price (e.g., 3.0x EBITDA)
2. Calculate required down payment (10-20%)
3. Calculate loan amount and monthly payment
4. Determine owner salary you can extract
5. Calculate net annual return on equity invested
6. Compare to your return requirements