Building a Robust Sources and Uses Statement for Your Acquisition

A well structured sources and uses of funds statement is a cornerstone of any small business acquisition. Lenders often require this document because it outlines how much capital you need, where it will come from, and how it will be spent. A clear breakdown not only satisfies lender expectations but also helps you strategize how to finance a business purchase.

Understanding Sources and Uses

‍The uses of funds refer to how you will spend the money raised. Common uses include the purchase price of the business, equipment upgrades, inventory, working capital, legal and due diligence costs, and closing fees. Some buyers also include a contingency reserve for unexpected expenses.

The sources of funds outline where that money will come from. These include personal equity, seller financing, outside investors, conventional bank loans, and SBA 7(a) loans. The total sources must equal the total uses. Any shortfall in sources shows how much financing is still needed.

How It Applies to SBA Loan Buyers‍

For those seeking a loan to buy a business, especially through SBA financing, the sources and uses statement becomes essential. Lenders want to see how much equity you are injecting, the size of your loan request, and whether you are including seller financing or investor funds to bridge the gap.

Most SBA transactions follow this format:

• 10 percent personal equity injection
  
• 70 to 80 percent SBA 7(a) loan
  
• 10 to 20 percent seller financing
  

This structure helps lower your cash requirement and shows lenders that you have carefully considered how to fund the transaction.

Building a Detailed Statement

Start by listing all anticipated costs under the uses section. These often include:

• Business purchase price
  
• Inventory
  
• Equipment or software upgrades
  
• Working capital
  
• Licensing or registration fees
  
• Legal and professional fees
  
• Contingency buffer
  

Then list your funding sources. These may include:

• Personal funds
  
• SBA 7(a) loan proceeds
  
• Seller note
  
• Investor equity
  
• Line of credit or equipment financing
  

If you plan to use SBA financing, make sure your uses are eligible. The SBA allows funds to be used for goodwill, working capital, and business assets, but not for earn outs or certain consulting fees.

Aligning With SBA Expectations

‍According to SBA Standard Operating Procedure 50 10 8, a borrower must show that the acquired business will generate a debt service coverage ratio (DSCR) of at least 1.15 by year two. Your uses must reflect investments that support cash flow and sustainability. Additionally, SBA rules require that the borrower occupy 51 percent of an existing facility or 60 percent of a new construction if real estate is involved.

Work with a qualified SBA loan broker or business acquisition lender to ensure your sources and uses statement complies with all SBA expectations.

Common Funding Strategies

Here are several ways buyers structure their capital stack:

• SBA 7(a) Loan – Covers most of the cost with long terms and low down payments
  
• Conventional Loan – Used when SBA is not a fit, typically requires more equity and has stricter underwriting
  
• Seller Financing – Reduces lender risk and shows seller confidence in the business
  
• Investor Equity – Friends, family, or third parties contribute capital in exchange for ownership
  
• Personal Funds – Required in most SBA deals to show skin in the game
  

Some buyers also add a line of credit or equipment lease to supplement working capital or future growth needs.

Putting It All Together‍

Once completed, your sources and uses statement should serve as a roadmap for both your lender and your acquisition team. It demonstrates that you understand how much money is needed, where it is coming from, and how it will be applied. Lenders view this clarity as a sign of strong preparation.

If you need assistance preparing your sources and uses or structuring your deal, our team at Pioneer Capital Advisory can help. We have closed over 100 SBA 7(a) loans and regularly assist buyers in building financing plans that meet SBA standards and lender expectations.

Explore More Resources

• Financing a Business Acquisition – Understanding funding structures and DSCR
  
• Business Acquisition Loan – How lenders evaluate deal strength and borrower readiness
  
• How to Finance a Business Purchase – Tips for combining SBA, equity, and seller notes
  
• Business Acquisition Lender – Choosing the right financing partner
  
• Loan to Buy a Business – Overview of conventional and SBA options
  

Final Thoughts‍

A strong sources and uses statement is more than just a checklist. It is a strategic tool that helps you secure financing, stay organized, and move closer to closing your acquisition. If you are preparing to buy a business, reach out to Pioneer Capital Advisory for expert guidance.