Introduction
SBA financing continues to play an important role in helping buyers acquire small businesses. Beginning October 1, 2026, several SBA underwriting and financing changes are expected to affect how acquisitions are structured and evaluated.
For buyers and sellers considering a transaction, understanding these changes early can help avoid surprises during the financing process and allow for better planning.
Higher Debt Service Coverage Requirements
One of the most significant changes is an increase in the historical Debt Service Coverage Ratio (DSCR) requirement for business acquisitions. The SBA requirement moves from 1.15x to 1.25x for first-time individual buyers, based strictly on historical cash flow.
This means buyers may have less debt-carrying capacity when using the same business earnings. According to the provided SBA financing guide, the change can reduce borrowing capacity by roughly 8% on identical earnings.
Strategic or existing operators acquiring a business as an expansion retain the 1.15x floor, which may provide approximately 8% more borrowing capacity compared with first-time individual buyers on the same target P&L.
Additional Quality of Earnings Review for Larger Deals
Acquisitions with a purchase price of $3 million or more will require a lender-commissioned Quality of Earnings (QoE) report.
This additional review means seller add-backs will be subject to third-party verification. Buyers and sellers should therefore expect greater scrutiny of adjustments to historical financial results and consider addressing questionable or unsupported add-backs early in the process.
Changes to Seller Notes and Equity
Seller financing used toward the required 10% equity injection will face stricter requirements.
The seller note must remain on full standby for the entire 10-year SBA loan term, may account for no more than 5% of the equity injection, and must have 36 months of seasoning before refinancing.
These requirements can have a meaningful impact on deal structure and should be considered early when negotiating the purchase price, equity contribution, and seller financing.
Greater Financing Capacity for Larger Acquisitions
The combined SBA 7(a) and 504 cumulative loan limit increased to $10 million effective July 2026.
The higher combined financing limit may create additional opportunities for buyers pursuing larger acquisitions, although the transaction still needs to meet applicable underwriting and cash-flow requirements.
Industry Matters When It Comes to Underwriting
Industry risk can also influence the level of underwriting scrutiny applied to an acquisition. The provided guide identifies differences in default rates and lender appetite across several industries.
Professional services and healthcare/medical are identified as lower-default industries, while manufacturing and industrial businesses are categorized as moderate risk. Hospitality and lodging, as well as restaurants and food service, are identified as higher-default sectors and may face stricter DSCR scrutiny.
For buyers, this means the industry of the target business can be an important consideration when evaluating financing options and transaction structure.
What Buyers and Sellers Should Do Now
- Review historical cash flow early and understand how the applicable DSCR requirement may affect borrowing capacity.
- Consider a pre-emptive Quality of Earnings review for transactions of $3 million or more.
- Evaluate seller financing carefully to ensure the proposed structure meets SBA standby and seasoning requirements.
- Consider strategic or existing operators as potential buyers where appropriate.
- Reduce owner dependency and strengthen operational continuity before a sale.
- Work with experienced advisors and lenders early so financing requirements are incorporated into the transaction strategy from the beginning.
Bottom Line
The 2026 SBA changes may affect how buyers qualify for financing, how seller notes are structured, and how larger acquisitions are reviewed.
For buyers, understanding the new requirements early can help establish realistic financing expectations. For sellers, preparing financial records, supporting add-backs, and structuring the business for a smooth transition can help make the company more financeable and attractive to qualified buyers.
At First Midwest Advisors, we help business owners and buyers navigate the complexities of mergers and acquisitions, including transaction planning, valuation, buyer identification, negotiations, and the overall sale or acquisition process.
If you are considering buying or selling a business, contact First Midwest Advisors to discuss your goals and how we can help guide you through the process.
Source: 2026 SBA Acquisition Financing Guide — Critical SBA Rule Shifts & Underwriting Benchmarks, effective October 1, 2026.
Jason Sanders | Managing Partner
517 206 7464