Net Income After Tax vs SBA Loan Payment - Searchfunder

Member resources:

Member directory

Searchfund list

Company contacts

Industry reports

Transaction multiples

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$29 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

1yr ago

Net Income After Tax vs SBA Loan Payment

My understanding is that DSCR = (adj EBITDA)/(amortized loan payment per year) is one of the key metrics SBA 7a lenders look at (among many other things), but at the same time, only the interest portion of the loan payment is tax deductible and principal part is not.

If the above info is true, shouldn't we take estimated net income tax expense into consideration when checking the DSCR? Thanks a lot

Share

0 Likes

77 Views

Login to read all 4 comments

Reply by a searcher 1yr ago
from Babson College in Long Island, New York, USA

EBITDA - estimated tax is definitely a more accurate numerator for DSCR on an annual basis, but I think the reality is that in most cases, if you acquire a small business, you're going to have enough D+I+A for the first several years to reduce your income tax significantly. so if you have a EBITDA/debt service ratio of greater than 1.2 (my preference is >1.5) , you should be fine. if your taxes go up it will only be because profits go up. and if you drop below 1 DSCR it's almost definitely going to be due to something other than high corporate income taxes.

add that to the fact that calculating accurate corporate income taxes taking into account all possible deduction and tax optimization strategies is not that straight forward, I think you hit the law of diminishing returns pretty quick and EBITDA based DSCR is a pretty good proxy.

That said, you should model out your net after tax cash flow for yourself and any equity investors.

Reply by a lender 1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I concur with the above comments. So long as the business is an S-Corp or LLC, you end up getting taxed personally on the income. The lenders do take into account personal taxes when figuring your draw and qualifying you for the loan, so there is some analysis that goes into that. If the business is a C-Corp, then most lenders will adjust for taxes as the C-Corp level after figuring out what deductions you will likely have going forward. Happy to help with any analysis you are working on. You can reach me here or directly at redacted

Loading latest on searchfunds...