{"ok":true,"canonical_url":"https://dealroom.so/glossary/income-capitalization","api_url":"https://dealroom.so/api/public/glossary/income-capitalization","data_freshness":{"sba_records_through":"2026-05-31","fdic_records_through":"2026-03-31","dealroom_last_updated":"2026-06-15","timezone":"America/Chicago"},"source_summary":["Public SBA 7(a) loan records","FDIC institution data","DealRoom lender and franchise enrichment"],"term":{"slug":"income-capitalization","term":"Income capitalization","group":"Reading the business","definition":"This is a valuation method that estimates a business's value based on its expected future income or cash flow, converting it into a present value. It's a key method for valuing profitable businesses.","what_it_means":"Appraisers often use income capitalization to determine the fair market value of a business, especially for service-based companies or those with consistent earnings. You'll see this method in the appraisal report. It helps justify the purchase price by demonstrating the business's ability to generate future returns and cover debt service.","url":"https://dealroom.so/glossary/income-capitalization","official_sources":[],"related":[{"slug":"business-valuation","term":"Business valuation","url":"https://dealroom.so/glossary/business-valuation"},{"slug":"appraisal-report","term":"Appraisal report","url":"https://dealroom.so/glossary/appraisal-report"},{"slug":"cash-flow","term":"Cash flow","url":"https://dealroom.so/glossary/cash-flow"},{"slug":"ebitda","term":"EBITDA","url":"https://dealroom.so/glossary/ebitda"}],"related_questions":[{"question":"What if the acquired business primarily generates revenue from passive rental income?","url":"https://dealroom.so/sba-7a/questions/what-if-the-acquired-business-primarily-generates-revenue-from-passive-rental-income"},{"question":"What constitutes \"passive income\" disqualifying a business from 7(a) loan eligibility?","url":"https://dealroom.so/for-lenders/questions/what-constitutes-passive-income-disqualifying-a-business-from-7-a-loan-eligibility"},{"question":"What if my personal tax returns show inconsistent income or losses from other ventures?","url":"https://dealroom.so/sba-7a/questions/what-if-my-personal-tax-returns-show-inconsistent-income-or-losses-from-other-ventures"},{"question":"Do businesses that primarily generate passive income qualify for an SBA 7(a) loan?","url":"https://dealroom.so/sba-loans/basics/do-businesses-that-primarily-generate-passive-income-qualify-for-an-sba-7-a-loan"},{"question":"Is there an income limit for my business to be \"small\" by SBA rules?","url":"https://dealroom.so/sba-loans/basics/is-there-an-income-limit-for-my-business-to-be-small-by-sba-rules"},{"question":"What if the business I'm buying has existing deferred revenue or unearned income?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-buying-has-existing-deferred-revenue-or-unearned-income"}]},"caveats":["Definitions represent DealRoom's plain-English interpretation for buyers; verify regulatory terms against the official SBA and eCFR sources listed.","Not legal, tax, or financial advice, and not an SBA eligibility determination."],"citation":{"label":"DealRoom.so Glossary — Income capitalization","url":"https://dealroom.so/glossary/income-capitalization","source_type":"DealRoom Data"}}