{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-diligence-must-a-lender-perform-on-seller-s-financials-for-a-7-a-acquisition","api_url":"https://dealroom.so/api/public/questions/what-specific-diligence-must-a-lender-perform-on-seller-s-financials-for-a-7-a-acquisition","question":"What specific diligence must a lender perform on seller's financials for a 7(a) acquisition loan?","topic":"Change-of-ownership underwriting","audience":"lender","bot_mode":"lender","short_answer":"Lenders must obtain and analyze comprehensive seller financial documentation, including tax returns (3 years), interim financial statements, and a detailed breakdown of discretionary expenses.","rule":"For a change of ownership, lenders must verify the historical financial performance of the acquired business. This includes obtaining federal income tax returns for the past three years, current interim financial statements, and often a seller's discretionary earnings (SDE) or adjusted EBITDA calculation to normalize for owner-specific expenses and non-recurring items.","example":"For a business acquisition, the lender requires the seller's federal tax returns (Form 1120 or Schedule C) for 2021, 2022, and 2023, plus year-to-date income statements and balance sheets for 2024. They also request a detailed list of owner salaries, benefits, and one-time expenses for adjustment.","what_lenders_check":"The accuracy of seller financials is paramount for underwriting the loan and assessing the business's repayment ability. Lenders must reconcile discrepancies, confirm consistency, and understand all adjustments made to arrive at a normalized cash flow.","required_facts":["Seller financials","Tax returns","Interim statements","SDE adjustments","Due diligence"],"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":"How does a lender evaluate the reasonableness of a business purchase price when the seller note is fully subordinated?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-reasonableness-of-a-business-purchase-price-when-the-seller"},{"question":"What are the specific requirements for valuing inventory and equipment in a business acquisition for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-valuing-inventory-and-equipment-in-a-business-acqui"},{"question":"When is an independent business appraisal mandatory for a 7(a) loan financing a business acquisition with a purchase price over $500,000?","url":"https://dealroom.so/for-lenders/questions/when-is-an-independent-business-appraisal-mandatory-for-a-7-a-loan-financing-a-business-ac"},{"question":"How does the SBA view a change of ownership where the new owner has no prior industry experience?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-view-a-change-of-ownership-where-the-new-owner-has-no-prior-industry-expe"},{"question":"Is an independent business appraisal required for a 7(a) loan financing a business acquisition with a purchase price exactly $500,000?","url":"https://dealroom.so/for-lenders/questions/is-an-independent-business-appraisal-required-for-a-7-a-loan-financing-a-business-acquisit"},{"question":"When must a lender require an independent business valuation for a change of ownership 7(a) loan, and what are the specific thresholds?","url":"https://dealroom.so/for-lenders/questions/when-must-a-lender-require-an-independent-business-valuation-for-a-change-of-ownership-7-a"}],"related_terms":[{"term":"7(a) loan","url":"https://dealroom.so/glossary/7a-loan"},{"term":"Lender's Application for Guaranty","url":"https://dealroom.so/glossary/lender-s-application-for-guaranty"},{"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"}],"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":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/what-specific-diligence-must-a-lender-perform-on-seller-s-financials-for-a-7-a-acquisition","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."]}