Small deal under LOI with messy books. SBA Funding?

February 18, 2025

by a searcher from Buena Vista University in Douglas County, CO, USA

We’re going under LOI for a 10-year-old, home-based service business with strong margins (just under 40%) and an attractive price at 2.4x. While the business has solid revenue and contracts in place for future events, the biggest hurdle is messy books due to the seller’s approach (lack of knowledge) to bookkeeping.

The Challenge:

The owner has been transparent about running a lot of personal expenses through the business because it is home-based—home and car insurance, personal cell phones, home office repairs, "business trips," etc. While most of these add-backs are documented (receipts, credit card statements), they make up nearly $250K of the $300K SDE. Given this, I’m concerned about SBA lender willingness to accept these add-backs.

Proposed Deal Structure:

Price: $727K

Buyer Cash: 10%

Seller Financing: 10% (2-year balloon)

SBA Loan: 80%

Key Timing Issue:

We’re hoping to close around May 1st to capitalize on several large contracts booked for early May. Speed is important.

Looking for Advice On:

1. SBA Lenders Who Will Work with Messy Books – Any banks or lenders known for being flexible and aggressive with add-backs?

2. Alternative Financing Strategies – If SBA proves too difficult, what other creative financing options have worked for you?

3. Experience Closing Deals with Similar Financials – Any insights from those who’ve navigated acquisitions where the books needed some “cleaning up” for financing approval?

Appreciate any insights, lender referrals, or strategies that could help get this deal across the finish line

Reply by a professional
from American University in Irvine, CA, USA

Hi. We have had a few clients acquiring companies in similar disarray. I agree with Brad that a business broker who know how to package and can "sell" your deal for you to prospective lenders can be helpful in these instances. I would also find a good CPA (ideally with some with SBA experience) who can prepare a recast showing what the true P&L and cash flows of the business would be if the personal expenses were discounted. From a dal-strategy perspective, we sometimes build in claw back provisions that recover some of the purchase price from the seller if after the closing the company doesn't perform as represented based upon the recast.

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

I would be happy to connect and take a look at your situation in more detail. We are a Commercial Loan Brokerage Shop with over 500 funding partners and over 80 SBA lending partners.

However, to be honest up front many of those add-backs might not be readily accepted by SBA lenders. We can take a look at the data you have and see if we can bet a lender comfortable. The other option as already stated would be to get a QofE done. Some lenders might accept more add-backs with the QofE in place. You can reach me here or directly at redacted

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