{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-seller-s-representations-about-the-business-s-financials-turn-out-to-be-signif","api_url":"https://dealroom.so/api/public/questions/what-if-the-seller-s-representations-about-the-business-s-financials-turn-out-to-be-signif","question":"What if the seller's representations about the business's financials turn out to be significantly inaccurate during diligence?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"Significantly inaccurate financial representations from the seller during due diligence will likely kill the SBA 7(a) loan approval and the acquisition itself.","rule":"The SBA loan approval is based on the business's historical financial performance, which dictates its ability to repay the loan. If due diligence uncovers material discrepancies or misrepresentations (e.g., inflated revenue, understated expenses), the lender will deem the financial projections unreliable, invalidating the basis for the loan. This often results in the termination of the purchase agreement.","example":"A seller claims $1,000,000 in annual revenue. During buyer's due diligence, it's discovered that $200,000 of that was non-recurring revenue from a discontinued product line. This 20% discrepancy would lead the lender to withdraw the loan offer, as the business's cash flow projections are no longer viable.","what_lenders_check":"Lenders rely on accurate financial information to assess risk and repayment capacity. Material misrepresentations constitute fraud and undermine the entire underwriting process, making the loan unapprovable by SBA standards. They have a duty to verify all financial data.","required_facts":["Inaccurate financials","Material misrepresentation","Unreliable projections","Loan denial","Due diligence failure"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What if the business I'm acquiring has poor historical cash flow or declining revenues for the last two years?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-poor-historical-cash-flow-or-declining-revenues-for"},{"question":"Can a high customer concentration (e.g., one customer is 50% of revenue) jeopardize my SBA 7(a) loan approval?","url":"https://dealroom.so/sba-7a/questions/can-a-high-customer-concentration-e-g-one-customer-is-50-of-revenue-jeopardize-my-sba-7-a-"},{"question":"What common issues can cause an SBA 7(a) loan application to be denied?","url":"https://dealroom.so/sba-7a/questions/what-common-issues-can-cause-an-sba-7-a-loan-application-to-be-denied"},{"question":"Can an SBA 7(a) loan be used to purchase a business that is currently unprofitable?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-purchase-a-business-that-is-currently-unprofitable"},{"question":"What happens if the acquired business declines significantly during the loan underwriting period?","url":"https://dealroom.so/sba-7a/questions/what-happens-if-the-acquired-business-declines-significantly-during-the-loan-underwriting-"},{"question":"What if the business I'm buying has existing tax liens or other government debts?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-buying-has-existing-tax-liens-or-other-government-debts"}],"related_terms":[{"term":"Financials","url":"https://dealroom.so/glossary/financials"},{"term":"Seller's lien","url":"https://dealroom.so/glossary/seller-s-lien"},{"term":"Seller's equity","url":"https://dealroom.so/glossary/seller-s-equity"},{"term":"Seller's Financing","url":"https://dealroom.so/glossary/seller-s-financing"},{"term":"Repair to the guaranty","url":"https://dealroom.so/glossary/repair-to-the-guaranty"},{"term":"Indemnification from the Seller","url":"https://dealroom.so/glossary/indemnification-from-the-seller"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-if-the-seller-s-representations-about-the-business-s-financials-turn-out-to-be-signif","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}