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 is annual cash flow divided by annual debt service. A 2.0x DSCR means the business earns twice what it owes the lender each year. It is the single most important number SBA lenders check on an acquisition. Regalis Capital targets 2x and holds a firm 1.5x floor. Most SBA lenders accept a 1.25x minimum, 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: net income plus those four add-backs. It is the metric lenders and buyers use to value businesses above roughly $3M to $5M in revenue. As of Q1 2026, the SBA acquisition sweet spot is 3x to 5x EBITDA. On smaller owner-operated businesses, brokers quote SDE instead, which averaged 2.7x in Q1 2026 (BizBuySell).
Read full definitionEquity Injection: What It Means for Business Buyers
Equity injection is the minimum capital a buyer must contribute to an SBA 7(a) acquisition: 10% of total project cost, with at least 5% in genuine non-borrowed cash. A seller note counts only on full standby for the life of the loan, capped at 50% of the requirement (per SBA SOP 50 10 8, effective June 1, 2025). On a $350,000 deal, that is roughly $35,000 of equity.
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 asking price divided by annual earnings. Small businesses sold at an average 2.7x SDE in Q1 2026 (BizBuySell); the SBA acquisition sweet spot is 3x to 5x EBITDA. Below 3x is a good deal. Above 5x needs 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 finances business acquisitions up to a $5 million maximum, covering up to 85% of the price on a 10-year term. It requires a 10% equity injection, with at least 5% in genuine non-borrowed cash (SBA SOP 50 10 8, effective June 1, 2025). With a median small business sale price of $350,000 in Q1 2026, it is the most common acquisition financing path for Main Street deals.
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. It is the base brokers value small businesses against: the average small business sold at 2.7x SDE in Q1 2026 (BizBuySell). SDE overstates real buyer cash flow, so Regalis Capital applies a 15% to 50% discount before underwriting. Most SBA lenders use adjusted cash flow, not raw SDE, for debt service coverage.
Read full definitionSeller Note (Full Standby): What It Means for Business Buyers
Full standby means a seller note with no principal and no interest paid for the entire life of the SBA loan, typically 10 years. Under SBA SOP 50 10 8 (effective June 1, 2025), only a full standby note counts toward equity injection, capped at 50% of the requirement. A note not on full standby counts as zero equity. Regalis Capital achieves full standby terms on over 90% of its deals.
Read full definitionWorking Capital: What It Means for Business Buyers
Working capital is current assets minus current liabilities, the operating cash already inside the business on day one. For a service business it usually runs 8% to 15% of annual revenue; for inventory-heavy businesses, 15% to 25%. Buyers negotiate a working capital peg in the purchase agreement with a 30 to 90 day true-up. Underfunded working capital is one of the top causes of post-close cash crunches for first-time buyers.
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