OwnerPath buyer guide

How to Sanity-Check SBA-Style Debt Coverage and Loan Cushion

A loan-cushion model asks whether adjusted cash flow appears to cover estimated annual debt payments—with room for error. It is educational scenario modeling, not a lending decision.

Start with cautious cash flow

Use cash flow after unsupported addbacks, replacement labor, and recurring capital needs. Do not use the most flattering listing number by default.

Estimate debt service

Enter purchase price, buyer equity, seller financing, assumed interest rate, and term. Rate, amortization, guaranty, collateral, standby treatment, eligibility, and lender policy can change the real structure.

Calculate and stress the cushion

Divide adjusted annual cash flow by estimated annual debt payments. For example, $250,000 divided by $200,000 is 1.25x. This is a scenario, not a pass line. Reduce revenue, lower accepted addbacks, raise rates, and include a replacement-manager cost to see what breaks.

Questions the model cannot settle

• Whether the business and borrower are eligible
• Whether source documents support repayment ability
• Required equity, collateral, guaranties, or seller-note treatment
• Working-capital and closing-cost needs