Preparing Financial Projections That Satisfy SBA Lenders

When securing SBA 7(a) financing for a business acquisition, few elements matter more than your financial projections. Lenders use these projections to evaluate the business’s ability to support new debt, maintain healthy operations, and withstand reasonable stress. Strong projections don’t just increase confidence—they directly influence lender appetite, terms, and timeline.

At Pioneer Capital Advisory (PCA), we help buyers build lender-ready financial packages that tell a complete, realistic story of the acquisition. This includes translating historical performance into forward-looking projections that align with SBA lender expectations and prudent lending standards. While every lender has its own nuances, the principles below represent the foundation of what most SBA lenders look for.

Pioneer Capital Advisory does not prepare buyer financial projections as part of our standard scope of work. We are however happy to review buyer-prepared projections and provide general input and comments to ensure they align with typical SBA lender expectations.

Why Financial Projections Matter in SBA Underwriting

Financial projections serve as the bridge between historical performance and the business’s future under new ownership. SBA lenders typically review projections to confirm:

1. The business can support the acquisition debt

Lenders focus heavily on Debt Service Coverage Ratio (DSCR), which compares available cash flow to required loan payments.

Under SOP 50 10 8, the SBA requires lenders to demonstrate a minimum projected DSCR of 1.15x within the first two years of the loan.

Most SBA lenders in today’s environment target 1.25x or higher as their internal underwriting threshold.

The most conservative lenders often require 1.50x or above, especially in industries with customer concentration margin volatility or operational risk.

2. Assumptions are reasonable and tied to historical data

Projections should not rely on aggressive growth or unexplained operational changes. Underwriters typically expect continuity with the seller’s historical performance unless clear supporting data justifies adjustments.

3. The buyer understands the operational drivers

Lenders want confidence that the incoming owner can operate the business successfully and maintain stable financial results.

4. The deal structure is sustainable

SBA lenders analyze how seller financing, working capital, and equity injection influence cash flow and liquidity.

Projections that lack support, contain optimistic growth rates, or ignore historical trends can cause delays—or derail the application entirely.

Building SBA Lender Ready Projections

Producing lender-ready projections begins with a clear understanding of what SBA lenders typically expect. While every business is unique, projections should include the following components:

1. A full 24-month monthly projection, plus annual years three through five

Many SBA lenders prefer monthly projections for the first twenty four months and annual projections for years three through five even though the SBA’s primary requirement is simply that lenders demonstrate adequate DSCR within the first couple of years.

Monthly detail helps lenders evaluate seasonality, working-capital cycles, and the timing of cash flows—key factors in acquisition underwriting.

2. Revenue assumptions grounded in historical data

Lenders typically compare projected revenue to:

• The seller’s trailing 12 months
• Prior 3–5 years of performance
• Industry-normal patterns

If you’re projecting increases, those projections should correspond to:

• Contracted customers
• Market expansion already underway
• Operational efficiencies
• Evidence-based marketing initiatives

Avoid “hockey-stick” growth curves. Stability first—then modest, supportable improvement.

3. Cost of goods sold (COGS) and gross margin consistency

Underwriters rely on gross margin trends because margins often remain stable for mature businesses. Lenders expect projections to:

• Use historical gross margins as a baseline
• Highlight any margin changes driven by identifiable operational shifts
• Avoid unexplained margin expansion

If a change in suppliers, pricing model, or product mix will affect margins, include documentation.

4. Operating expenses that reflect the post-acquisition environment

Your model must include all expenses necessary to operate the business after closing. Lenders commonly examine:

• Owner salary calibrated to the incoming operator
• Employer payroll taxes
• Insurance (liability, hazard, workers comp, etc.)
• Updated software, bookkeeping, and back-office costs
• Market-rate rent where applicable

SBA lenders routinely test projections by adding overlooked expenses, so detail matters.

5. Debt schedule and DSCR calculation

A complete debt schedule includes:

• SBA loan payments based on proposed lender terms
• Any seller note payments
• Equipment or vehicle loans assumed in the purchase
• Working-capital financing costs

To calculate DSCR:

DSCR = Cash Flow Available for Debt Service ÷ Total Debt Service

Projections should clearly demonstrate adequate DSCR within the first two years:

Under SOP 50 10 8 the SBA requires lenders to demonstrate minimum projected DSCR of 1.15x within the first two years of the loan.

Most SBA lenders in today’s environment target 1.25x or higher as their internal underwriting threshold.

The most conservative lenders often require 1.50x or above especially in industries with customer concentration margin volatility or operational risk.

6. Working capital sufficiency

Insufficient working capital assumptions are a leading cause of lender pushback. Projections should demonstrate:

• Enough cash to support payroll, inventory, and operating cycles
• Liquidity that remains positive after debt obligations
• No dependence on unrealistic revenue spikes to remain solvent

Including a cash-flow statement (operating, investing, and financing sections) is best practice.

7. Clear and supportable assumptions

Your assumptions page is one of the most heavily reviewed elements of the entire SBA projection package. Lenders evaluate assumptions for:

• Reasonableness
• Consistency with historical data
• Alignment with industry norms
• Transparency of methodology

Common assumption categories include:

• Customer growth rates
• Pricing and inflation expectations
• Vendor or material cost changes
• Staffing levels and compensation
• Subscription or software needs
• Working-capital cycle timing

A lender should be able to read your assumptions and instantly see how the model was constructed.

Common Mistakes That Cause Delays (and How to Avoid Them)

1. Overly optimistic revenue growth

Any growth above historical trends must be backed by evidence—not optimism.

2. Ignoring seasonality

Seasonal businesses must show realistic cash swings or lenders may question cash sufficiency.

3. Missing key expenses

Frequent omissions include:

• Owner payroll
• Insurance
• Employer taxes
• Required professional services

4. Miscalculating seller note terms

Balloon payments, interest-only structures, and standby requirements must be reflected correctly.

5. Not reconciling projections with tax returns

Lenders cross-check all projections with verified historical financials. Any differences require explanation.

How PCA Helps Buyers Build Lender-Ready Projections

At Pioneer Capital Advisory, we work with buyers from LOI through closing to ensure their financial package is complete, consistent, and aligned with SBA lender expectations. Our support includes:

• Translating historical performance into a clear forward-looking model
• Structuring projections to support DSCR and underwriting requirements
• Ensuring assumptions align with SBA lender expectations and prudent lending standards
• Identifying red flags before lenders see them
• Helping buyers compare lender proposals using projected cash-flow impacts

Our goal is to help you present a deal that is easy for a lender to understand and approve, so you can move efficiently toward closing.

Conclusion

Strong financial projections aren’t just a formality—they are a central tool for demonstrating the viability of your SBA acquisition. When grounded in historical performance, supported by clear assumptions, and aligned with lender expectations, projections accelerate underwriting, strengthen lender confidence, and create a smoother path to closing.

If you want expert guidance in preparing your lender-ready package, PCA is here to help.