Business Acquisition Glossary
Add-Backs: What It Means for Business Buyers
Add-backs are expenses added to net income to calculate SDE or adjusted EBITDA, representing costs that would not continue under new ownership. Legitimate add-backs include owner salary, personal vehicle costs, and one-time legal fees. According to Regalis Capital's deal team, buyers should scrutinize every add-back carefully, as inflated add-backs are one of the most common ways deals fall apart in due diligence. As of Q1 2026, aggressive add-back schedules are increasingly common in small business transactions.
Read full definitionAsset Purchase vs Stock Purchase: Business Buyer Guide
An asset purchase transfers specific business assets to the buyer; a stock purchase transfers ownership of the legal entity. SBA 7(a) lenders strongly prefer asset purchases because they limit liability exposure and allow a step-up in tax basis. According to Regalis Capital, the vast majority of SBA-financed acquisitions close as asset purchases. As of Q1 2026, exceptions exist but require lender approval.
Read full definitionDSCR (Debt Service Coverage Ratio): SBA Acquisition Guide
DSCR measures whether a business generates enough cash flow to cover its loan payments. Calculated as annual cash flow divided by annual debt service, it is the single most important number SBA lenders check on an acquisition. Regalis Capital targets a 2x DSCR on deals and holds a firm 1.5x floor. As of Q1 2026, most SBA lenders require a minimum 1.25x, but that leaves almost no margin for error.
Read full definitionDue Diligence: What It Means for Business Buyers
Due diligence is the formal investigation a buyer conducts after signing an LOI, covering financials, operations, legal, and compliance before closing. It typically runs 30 to 60 days. According to Regalis Capital's deal team, most deal failures trace back to skipped or rushed due diligence. A clean process also protects your SBA 7(a) loan approval.
Read full definitionEBITDA: What It Means for Business Buyers
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the standard metric lenders and buyers use to value businesses for acquisition. As of Q1 2026, SBA lenders target 3x to 5x EBITDA as the deal sweet spot. Regalis Capital uses EBITDA, not SDE, as the primary underwriting metric for all acquisitions.
Read full definitionEquity Injection: What It Means for Business Buyers
Equity injection is the minimum capital a buyer must contribute to an SBA-financed acquisition. The SBA requires 10% of the total purchase price, structured as 5% buyer cash plus a 5% seller note on full standby acting as equity. Regalis Capital achieves full standby seller notes at 0% interest on over 90% of deals, minimizing cash out of pocket.
Read full definitionLetter of Intent (LOI): What It Means for Business Buyers
A Letter of Intent (LOI) is a non-binding document that outlines the proposed terms of a business acquisition, including price, structure, and contingencies. Exclusivity is typically binding. Regalis Capital submits LOIs only after initial vetting, targeting a 60 to 90-day close from signing. SBA lenders review the LOI during pre-qualification.
Read full definitionMultiple (Valuation): What It Means for Business Buyers
A valuation multiple is the factor applied to a business's earnings to determine its asking price. For SBA acquisitions, the sweet spot is 3x to 5x EBITDA. Below 3x is a good deal. Above 5x requires a more de-risked structure. Regalis Capital targets multiples where the resulting debt service leaves at least a 2x DSCR on day one.
Read full definitionSBA 7(a) Loan: What It Means for Business Buyers
The SBA 7(a) loan is the primary financing tool for acquiring businesses in the $500K to $5M range. It covers up to 85% of the acquisition price with a 10-year repayment term and requires a 10% equity injection, typically structured as 5% buyer cash plus a 5% seller note on full standby. Regalis Capital uses SBA 7(a) on the majority of its acquisitions.
Read full definitionSDE (Seller's Discretionary Earnings): What It Means for Buyers
Seller's Discretionary Earnings (SDE) is net income plus the owner's salary, perks, and discretionary add-backs. Brokers use SDE to value small businesses, but it overstates what a buyer will actually earn. Regalis Capital recommends applying a 15% to 50% discount to SDE before underwriting a deal. As of Q1 2026, most SBA lenders use adjusted cash flow, not SDE, for debt service coverage analysis.
Read full definitionSeller Note (Full Standby): What It Means for Business Buyers
A seller note on full standby is a portion of the purchase price (typically 15-20%) financed by the seller at 0% interest, with zero payments required during the SBA loan term (usually 10 years). Regalis Capital achieves full standby terms on 90%+ of its deals, meaning buyers carry no seller note debt service while the SBA loan is active.
Read full definitionWorking Capital: What It Means for Business Buyers
Working capital is current assets minus current liabilities. In a business acquisition, it represents the operating cash already inside the business on day one. Buyers negotiate a working capital peg in the purchase agreement, typically with a 30 to 90 day true-up. According to Regalis Capital, underfunded working capital is one of the top causes of post-close cash crunches for first-time buyers.
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