There’s a lot in SOPredactedthat buyers, brokers, lenders, CPAs and attorneys need to understand. The changes touch Quality of Earnings, debt service coverage, investor capital and equity injections, seller financing, real estate loan terms and what qualifies as a Business Expansion. Here’s some of what we’ll be talking about. - Quality of Earnings: For acquisitions with a purchase price of $3 million or more, a QoE will now be required in addition to the valuation. There are specific requirements around who performs it, cash verification, add-backs, customer concentration and the numbers lenders will ultimately use to underwrite the transaction. - Debt Service Coverage: Initial Acquisitions and Owner Buyouts will require a minimum 1.25x DSCR, while qualifying Business Expansions will have a 1.15x requirement. How the deal is classified matters, and buyers need to understand that before they start structuring around a certain level of cash flow. - Investor Capital and Equity: The 10% injection requirement remains, but there are new rules around how investor capital can be used toward it. Investor funds can cover up to half of the required injection, with restrictions around repayment and distributions when that money is being counted toward the injection. A full standby seller note can still cover up to half as well. - Real Estate: The real estate portion of an acquisition can still receive up to a 25-year term, but the business acquisition and other eligible costs are capped at 10 years. Depending on the structure of the transaction, that can change the amortization and annual debt service buyers are expecting. - Business Expansions: There are specific requirements around ownership history, industry classification, personal guarantors and how the businesses are structured after closing. If the transaction qualifies, the 1.15x DSCR requirement and additional flexibility can be meaningful. If it doesn’t, you want to know that early. The biggest thing I want buyers to understand is that these aren’t changes you wait until the end of underwriting to think about. They can affect how you structure an acquisition from the beginning, especially if you’re under LOI or preparing to make an offer right now. This week, I’ll walk through these changes in more detail, share how I’m looking at them from the lending side and answer questions about how they could affect your next deal. If you have a deal in motion, bring your questions. If you’re actively searching and want to understand the new rules before your next LOI, come join us. Register: redactedredacted