Deal Grade

We back buyers, searchers, and operators buying one real business. We question earnings, stress-test models, and mock institutions bidding someone else's money.

[Deal Grade @DEAL_grade]

I spent the last year trying to buy a business. Came close on several. Submitted LOIs, went deep into diligence, and read hundreds of CIMs to get there.

This thread is about the one piece of that grind I automated, and how to use it free.

[Deal Grade @DEAL_grade]

From Oct 1 the SBA lender orders the QoE on acquisitions over $3M. The report is addressed to the bank now, not to you, and that changes who it is written for.

A buy side QoE used to be a fast, scoped set of procedures to help you decide. Now the same report sits in a federal credit file, and if the loan goes bad it is part of the evidence package. Providers who understand that will scope wider, price higher and take longer.

Budget for it. The cheap two week QoE was written for a reader who no longer exists.

[Deal Grade @DEAL_grade]

Under the new SBA SOP, the lender's QoE on a $3M plus acquisition includes a cash proof: reported revenue reconciled to actual bank deposits, trailing twelve months plus the two fiscal years before that. In plain terms, the bank statements are the books now.

Most sellers hand over a P&L. Ask for the deposit history month by month and lay the two side by side before the LOI. A clean annual number can hide a business that earns its year in two quarters, and where the P&L and the deposits disagree, the lender will believe the deposits. So should you.

[Deal Grade @DEAL_grade]

BizBuySell's Q3 report is out. 2,132 businesses sold, flat on the quarter and down 7% on the year. Median sale price $350,000, up 17% on the year. Nearly half of buyers say listings are overvalued, and brokers now name SBA financing as the top obstacle, ahead of interest rates.

Read those together as a buyer. Fewer deals are closing at higher prices, and the loan is the hard part. Q3 was the last quarter under the old SBA rules. From Oct 1 the lender underwrites trailing earnings only, so the price the seller wants and the price the bank will finance are two different numbers. Know which one you are negotiating.

[Deal Grade @DEAL_grade]

New SOP, new reader. On SBA deals of $3M and up the QoE used to be the buyer's tool: fast, scoped, agreed-upon procedures, written for one decision. Now the lender requires it and wants to rely on it in writing, and the report sits in a federal credit file next to the guaranty. Expect a narrower scope, a longer clock and a bigger invoice, all on the buyer's tab. Order your own before the LOI, so the lender's version confirms a number you already trust instead of finding one you do not.

[Deal Grade @DEAL_grade]

The SBA doubled the combined 7(a) plus 504 ceiling to $10M per borrower this year. Read the fine print as a buyer and nothing that stops most deals moved an inch.

At $10M the equity injection is still 10%, so $1M, and from Oct 1 at most half of it can come from a seller note or other non-cash source. Over $3M the lender orders a CPA quality of earnings report. Underwriting runs on trailing earnings, not the projection page.

A bigger ceiling helps the buyer who already qualified. It does nothing for the one who did not.

[Deal Grade @DEAL_grade]

Lenders are spending a whole session this week on the top 20 reasons the SBA repairs or denies a 7(a) guaranty. Read that list as a buyer and most of it is paperwork you control: where the equity injection came from, what got documented at closing, whether the file still matches the application.

The guaranty protects the bank, not you. Keep your own file as if you were the one who would have to defend it, because a bank with a guaranty problem after closing becomes your problem very fast.

[Deal Grade @DEAL_grade]

The SBA closed fiscal 2026 with 56,130 7(a) loans for $32.4B. Both numbers fell by double digits, and the rulebook that started Oct 1 is tighter again.

Plain version for a buyer: the loan still exists. The benefit of the doubt does not.

Over $3M, the lender now wants a CPA's quality of earnings report, and underwriting runs on trailing earnings instead of the projection page.

The hockey stick in the teaser is now officially decorative.

[Deal Grade @DEAL_grade]

Advent is raising $3B for its first fund dedicated to mid-market buyouts. The trade press is calling it giants pursuing smaller deals.

Worth translating. At that altitude, small means a company with a CFO, audited financials and a banker running a process.

If you are buying a $2M EBITDA business, nobody that size is coming for your deal. Your competition is another searcher and the seller's nephew.

The work is still reading three years of tax returns before anyone else does.

[Deal Grade @DEAL_grade]

Harvest Small Business Finance closed a $93.1M securitization last week, backed by the unguaranteed portions of SBA 7(a) loans.

The pool: 306 loans, average size about $1.08M, weighted FICO 735, average business 13 years old.

That is what bond investors consider a financeable Main Street loan. If your target is 4 years old, expect the lender to ask for more.

[Deal Grade @DEAL_grade]

The Main Street version: most 7(a) acquisition loans float off prime and carry a personal guarantee, so a first-time buyer starts out structured like Crow. With prime at 7.00%, run your coverage at 8% before you sign and hold cash like Zell. https://t.co/dqzvZY2VQa

[Amanda Orson @amandaorson]

Most of us weren't alive during the last rising-interest-rate environment in the 70s but let's rewind through the lens of two different investors:

Trammel Crow and Sam Zell

Crow pioneered warehouse development and was doing both lots of projects and some BIG projects (Embarcadero in SF, Peachtree in Atlanta). He had a decentralized partnership model. By the end of 1974 (inflation peaked around 12%) his annual cashflow was -$25M and he had hundreds of partnerships and $400M in short-term debt, of which $151M was PGed. (🤢)

By 1972, Zell not only had stopped his own apartment acquisitions (they became too expensive a few years earlier) but he also stopped backing developers. There's this anecdote where he just noticed that there were cranes everywhere and concluded that supply and demand were out of balance, so just stopped buying. For a year he did no new deals, stacked existing project cashflow, built relationships with lenders, and reengineered his company to focus on distressed real estate.

By 74 / peak inflation Zell was negotiating acquisition of distressed assets; Crow was trying to stay alive somehow despite his.

Crow's remedies were what you'd expect
- negotiate payment extensions and interest deferrals
- mobilize supportive lenders
- ask senior partners to liquidate assets to pay down debt

But he also had to do an aggressive restructuring, b/c his partnership model (100 partners & 604 agreements!) was ungovernable.

It took a few years (and I can't imagine the phone calls) but in 1977 he was still alive. They separated the business into two different companies: resi and commercial development. By 78, he was back to building ambitious projects not just managing workouts.

Crow survived, but max pain and on hard mode.

Zell, otoh:
- In 74 began taking over distressed properties through lender workouts, sometimes buying assets for 50 cents on the dollar. Per his autobiography “I looked at each property and figured out how much debt service it could handle based on its existing cash flow.”
- The key was how he financed it: banks wanted to avoid write-downs, so Zell kept their principal whole in exchange for a (far lower than market) fixed rate, around 5%, and took control with little cash. Ex: a property with $600K NOI and $10M of debt @ 10% is dead but @ 5%, it covers its debt. Same property/ principal.
- In all he bought about $3B of distressed real estate from 1973 to 1977.

What I take from it:
1. The best position to be in is to not be over-leveraged to begin with. But if Trammel Crow could make it through '74-77 with the odds he had stacked against him, anyone can.
2. Financing terms are part of the price. A $1M property with bad debt can cost more than a $1.2M property with good debt.
3. Purchase price is only part of the cash you have to think through, you have to be able to carry it. Zell bought apartments at about half of replacement cost, but buying cheap doesn't help if your debt comes due before the market recovers.
4. A good property with bad debt can be a *great* deal and a ton of Zell's real estate success was identifying those opportunities
5. You can buy the debt instead of the property. A distressed note gives you several ways to win, up to foreclosing and owning it.
6. Learn seller financing, assumptions, workouts, notes, and foreclosure law in your markets.
7. Build cash so you can wait.
8. You only need one good property owned by someone whose problem you can solve.

When money is expensive, look for expensive problems you know how to solve. Fortunes are made this way.

[Deal Grade @DEAL_grade]

@WalbridgeSMB @Shopify @ShopifySupport @tobi Rough week. For anyone reading with a deal in progress: put platform and processor transfers in the purchase agreement as a seller obligation, with the seller sweeping collections to you weekly until the handoff clears. Hope it breaks loose today.

[Deal Grade @DEAL_grade]

@C_C_Milligan @BusinessExits The two I see rejected most: owner comp added back with no replacement salary netted out, and "one-time" costs that show up three years running. If it recurs, the lender treats it as a cost of doing business.

[Deal Grade @DEAL_grade]

The crowding is real on anything with clean books and a bank-ready story. The companies nobody else called usually have a reason a lender balks: customer concentration, an owner who is the whole sales team, or messy financials. The open field is mostly businesses where the work is making it financeable, not finding it.

[Deal Grade @DEAL_grade]

@BobbyBizScout Worth pairing with the other number: Forbes had total 7(a) approvals down about 30% by count in FY2026. Fewer, larger loans. The money is there for a $1M+ deal with clean history. The buyer under $500K is the one struggling to find a lender who wants it.

[Deal Grade @DEAL_grade]

@benkellyone The bank statement rebuild is the right core. One add: do a rough version before the LOI. Ask for 12 months of statements under NDA and tie deposits to reported revenue. It will not replace a QoE, but it keeps you from pricing off a P&L nobody can support.

[Deal Grade @DEAL_grade]

Two changes landed two weeks apart. The Fed raised a quarter point on Sept 16, so prime is 7.00%. On Oct 1 the SBA floor for acquisition loans went to 1.25x coverage on historical earnings.

Same business, same cash flow, smaller loan. If your offer was priced in August, rerun it before the lender does.

[Deal Grade @DEAL_grade]

@SMBDealGuy The tell usually shows up before the write-offs do: days to collect creeping up while revenue holds. Worth asking for the aging at three dates, not one. A seller who pushed revenue in the last year often did it by loosening terms.

[Deal Grade @DEAL_grade]

@markLFeinberg One more lever for that list: the seller note. On full standby it can count toward the equity, up to half of it. It does not fix coverage, but it changes how much cash the buyer has to bring while the price gets worked out.

[Deal Grade @DEAL_grade]

Plain version of 2 and 6 together: the seller can stay on paid for two years, but a seller note only counts toward your down payment if it sits unpaid, and half of the 10% still has to be your cash. Have that conversation at the LOI, not the week of closing.

[Eric Hsu @lawyer4SMBs]

It's Oct 1.

Welcome to the first day of the new rules for SBA 7A loans.

Some of the biggest changes for loans from here on out:

1. Deals $3M+ requires QoE (always at your cost - you can hire BUT needs your lender's approval)
2. Seller consulting can be up to 24 months now
3. No payments to investors (other than tax distributions) until loan repaid
4. Working capital true-up payments from seller stay with you now (instead of paying down your loan)
5. 1.25 is now the DSCR floor
6. Plan on (almost always) bringing 50% of required equity injection (10% of project cost) in the form of your cash into the deal

Now more than ever it's critical to work with knowledgeable advisors pre-LOI so that you're staying within the rules.

[Deal Grade @DEAL_grade]

@mattragudo One step earlier: get the renewal date and the last two years of premium increases during diligence. If renewal lands 60 days after close, the buyer inherits a price change nobody modeled. Benefits is one of the few cost lines that moves right after the handoff.