Buyer experiences getting SBA loan with no current income

October 19, 2023

by a searcher from Arizona State University - W. P. Carey School of Business in Alameda, CA, USA

I'm getting somewhat conflicting information about how current income plays into SBA loan requirements/qualification when purchasing a business. I've been told that banks will look at your monthly obligations to calculate a standard cost of living, and assume an owners draw is needed to cover (minus any income). If it cannot, there will be issues. On the other hand, I've spoken with searchers who have received an SBA loan w/o current income.

Are there scenarios/ways searchers without an income have found success getting an SBA loan?

Thank you!!

**I am currently not working (little to no income) while I do a search + do not personally require my next acquisition to cover all my living expenses

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. You are correct in that you do not need to show any current income to qualify for an SBA 7A business acquisition loan. The lender will calculate what you need to service personal obligations (debt, mortgage or rent, real estate taxes, federal & state taxes, living expenses, etc.) and then make an adjustment to the business cash flow (an owner's salary / draw adjustment) to cover those personal expenses. This will reduce the amount of cash flow available to service the business debt, but so long as you still hit the required ratios after this adjustment, you should not have a problem qualifying for the loan. It is standard to remove from adjusted EBITDA a normalized salary for an owner / operator any way, so the price you are paying for the business should already have this number factored in. Now if after the adjustment the business no longer has the cash flow to adequately service the debt, then you would have a problem qualifying.

If other individuals have told you they have gotten qualified without any personal income, then it is because the Bank is making the adjustments above in their underwriting, whether they are aware of it or not.

One other thing to keep in mind. If you have spousal income, that could be used to help offset living expenses. However, lenders will only typically use spousal income if your wife signs a guarantee as well on the loan. So you might want to be sure you can draw a sufficient salary to support your debts separately if you do not want your wife to have to guarantee the loan.

I hope this helps to answer your question. If you have any additional questions please do not hesitate to reach out to me here or directly at redacted Good luck.

Reply by a lender
from California State University, Chico in Indianapolis, IN, USA

Great feedback, this a great question because each SBA lender will calculate what they expect your draw needs to be a little differently, which can obviously change the projected debt service and thus that ever important debt service ratio. For example, I've seen some SBA lenders take your monthly expenses, add $1,000 per month per person in the household, multiply that by 12 and assume that's your required annual draw, while others lenders use a 50% DTI ratio for personal debt including average annual income taxes and monthly debt obligations, to calculate actual owner’s draw needed. The bottom line is most SBA lenders will add back the seller's salary or payments to themselves then turnaround and expense what they expect your draw needs to be, minus any outside income you might have, if any, of course .

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