Sources And Uses For A Business Acquisition
A sources and uses table shows every dollar in a business acquisition: what you are paying for on one side, and where the money comes from on the other. The two sides must match. For an SBA loan, this table also sets your total project cost, which decides your 10% Down Payment. Here is how to build one, line by line.
In This Guide
What A Sources And Uses Table Is
Every acquisition has two lists. Uses are everything the deal pays for at closing: the purchase price, working capital, fees and any real estate. Sources are everything that pays for it: the SBA loan, your cash, a seller note and any investors.
The rule is simple. Total sources must equal total uses, to the dollar. If they do not match, something is missing, usually a closing cost nobody budgeted for.
Lenders, sellers, brokers and attorneys all work from this table. It is the first thing a lender checks in your package, and it often changes several times between the letter of intent and closing. Building it early keeps everyone on the same numbers.
The Uses Side
These are the lines most SBA acquisitions include:
- Purchase price. The amount in your letter of intent or purchase agreement, including goodwill, equipment, inventory and other assets.
- Working capital. Cash for the business to run after you take over: payroll, supplies and the gap before receivables come in. SBA allows working capital in a change of ownership loan.
- Due diligence costs. The business valuation and, for larger deals, the Quality of Earnings report. SBA lets these be financed as borrower out-of-pocket costs.
- Closing costs. Legal fees, lender fees, title and lien searches, and the SBA guaranty fee, which can be paid from loan proceeds.
- Real estate, if the building comes with the business and you will occupy it.
- Existing business debt that is paid off at closing as part of the purchase.
What Total Project Cost Means
SBA sets the Down Payment on the total project cost: all costs required to become operational, regardless of where the money comes from. Two things are left out: lines of credit and 504 loans. So if a working capital line closes alongside your term loan, it does not raise your Down Payment. Working capital inside the term loan does.
The Sources Side
On the other side of the table, the usual sources are:
| Source | What to know |
|---|---|
| SBA 7(a) loan | Up to $5,000,000; usually the biggest line |
| Your cash | Savings, gifts and other cash that is not borrowed; no limit |
| Seller note on full standby | No payments for the life of the SBA loan; counts toward up to half of the Down Payment |
| Seller note that is repaid | Allowed, but it does not count toward the Down Payment and its payments count in the cash flow test |
| Minority investors | Under 20% and no control; share the same half as the standby note |
| Conventional loan | Used alongside the SBA loan on larger deals, called pari passu |
Two sources do not belong here. Seller earnouts are not allowed in SBA deals. And a working capital true-up in the purchase agreement is a post-closing adjustment, not a source of funds at closing.
A Worked Example
Here is a full table for a buyer purchasing a plumbing company. The buyer has already paid for the business valuation, and the seller has agreed to two notes: one on full standby and one that is repaid over time.
| Uses | Amount |
|---|---|
| Purchase price | $1,800,000 |
| Working capital | $120,000 |
| Legal, lender fees and SBA guaranty fee | $70,000 |
| Business valuation (paid by the buyer before closing) | $10,000 |
| Total project cost | $2,000,000 |
| Sources | Amount |
|---|---|
| Buyer cash at closing | $90,000 |
| Buyer cash already spent on the valuation | $10,000 |
| Seller note on full standby | $100,000 |
| Seller note repaid over time | $150,000 |
| SBA 7(a) loan | $1,650,000 |
| Total sources | $2,000,000 |
Now check the Down Payment:
Example: Checking The Down Payment On A $2,000,000 Project
| Total project cost | $2,000,000 |
| Down Payment required (10%) | $200,000 |
| Buyer cash, including the $10,000 already spent on the valuation | $100,000 |
| Seller note on full standby (half, the maximum) | $100,000 |
| Total counted toward the Down Payment | $200,000 |
| Repaid seller note (does not count) | $150,000 |
Money the buyer spends on due diligence reports can count toward the Down Payment. A separate $150,000 line of credit closing at the same time would not change any of these numbers.
The table balances, and the Down Payment works. Two more tests still apply.
Total debt. The SBA loan plus any seller debt that is not on full standby cannot exceed the business valuation. Here that is $1,650,000 plus $150,000, or $1,800,000, so the independent valuation needs to support at least that much.
Cash flow. The business has to cover the payments on the SBA loan and the repaid seller note at least 1.25 times. The standby note does not count, because it has no payments. Our DSCR guide shows the test.
When The Valuation Comes In Low
Say the lender's independent valuation supports $1,700,000, not $1,800,000. SBA says the difference between the price and the valuation must be made up by equity. That $100,000 gap is on top of the 10%.
You have three ways to close it:
- Negotiate the price down to the valuation. The cleanest fix, and the valuation report gives you a reason to ask. See negotiating price and terms.
- Bring more cash from an unlimited source.
- Ask the seller to carry more on full standby. SBA allows extra limited sources in this situation, but every added dollar has to be on full standby.
Whichever you choose, rebuild the table so both sides still match.
Adding Real Estate
If the building is part of the deal, it goes on the uses side, and the 10% Down Payment applies to it too. The lender can put the real estate in a separate loan or blend it into one loan. With separate loans, your Down Payment is split between them pro rata. A 504 loan for the real estate follows its own Down Payment rules. Our guide to buying a business with real estate walks through both options.
Tips For Building Your Table
- Start from the letter of intent price and add working capital and every closing cost you can name
- Ask the lender for its fee estimate and the SBA guaranty fee for your loan size
- Keep receipts for anything you pay before closing, such as the valuation or a QoE report
- Label each seller note clearly: full standby or repaid
- Keep any line of credit out of the project total, in a separate line below the table
- Update the table every time the price, the structure or the fees change
When the table is ready, a pre-qualification letter turns it into something sellers and brokers can rely on. For the loan itself, see our SBA business acquisition loan page.
Every deal we work on starts with a sources and uses table. We build yours from the LOI, check it against SBA rules and the lender's fees, and keep it updated through closing so there are no surprises at the closing table.
- A lender-ready sources and uses table for your deal
- Down Payment and total debt checks before you apply
- One team keeping the numbers current through closing
Frequently Asked Questions
What is total project cost on an SBA acquisition?
All costs required to become operational, regardless of where the money comes from: the price, working capital and closing costs. Lines of credit and 504 loans are left out.
Does a line of credit increase my Down Payment?
No. A line of credit that closes alongside the acquisition is excluded from total project cost, so it does not raise the 10% Down Payment. Working capital inside the term loan does.
Can closing costs be financed in the SBA loan?
Yes. Working capital, borrower out-of-pocket costs such as the valuation and QoE, and the SBA guaranty fee can be paid from loan proceeds.
Does money I already spent on due diligence count?
Yes. Funds you spend on the financial due diligence reports can count toward the Down Payment. Keep the paid invoices and bank statements.
What happens if sources and uses do not balance?
Something is missing or double counted. Most often it is a closing cost nobody budgeted for. The lender will not close until the two sides match.
More In Structure The Deal
The full Buy A Business guide · Previous: Search Funds And Investor-Backed Deals · SBA Business Acquisition Loans · Closed Deals · Pre-Qualification Letter · Best SBA Lenders For Plumbing And HVAC
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