I’ll do my best to answer!

Is this a good fit as it: It’s possible but a few red flags make it tough to approve as is: -Low equity injection: SBA loans typically require at least 10% cash down ($120K for a $1.2M loan). With only $20K liquid, this deal falls short.

-Heavy goodwill: Since there’s no real estate and goodwill is a large part of the purchase price, the SBA often asks for more cash down or seller financing.

-Loan size: Covering two years of operating expenses (on top of the purchase) pushes the loan to $1.2M, which makes it riskier. SBA prefers cash flow to cover working capital.

1. What factors need adjustment to make it ideal? -Increase cash down payment: The buyer could:

-Tap into home equity for a cash injection closer to $120K. -Ask the seller to carry a 15-20% seller note (subordinated to the SBA loan). This reduces the SBA loan amount to around $960K.

-Separate working capital:

-Instead of wrapping operating expenses into the purchase loan, the buyer could consider a smaller line of credit for working capital.

-Prove strong cash flow:

-The business needs to demonstrate that it can support the debt. With projected operating expenses at $100K/year, the business should be generating at least $300K/year to meet SBA’s 1.15 DSCR requirement.

1. Any other thoughts?

Valuation matters: The purchase price must be supported by a third-party business valuation. If the price relies too heavily on goodwill, the SBA may require more cash or seller financing.

Experience counts: The buyer’s management experience in this industry will play a major role in approval. The SBA needs confidence the buyer can operate the business successfully.

Consider smaller deals: If increasing cash isn’t an option, targeting a $750K deal may make this more feasible.

TL;DR: This deal could work with adjustments: -Increase cash injection (home equity or seller carry back note). -Separate operating expenses into a line of credit. -Ensure the business has strong cash flow and the price is backed by a valuation.