For SBA lenders
Short answer
A lender must critically evaluate the reasons for revenue or profitability decline, assess if the buyer can reverse the trend, and adjust financial projections and valuation accordingly.
Prudent lending standards require lenders to understand the historical performance of the acquired business. If there's a significant decline, the lender must determine if it's a temporary anomaly, a market shift, or a fundamental issue. This analysis influences the viability assessment, debt service coverage projections, and ultimately the loan's approvability.
A seller's business shows a 20% revenue drop in the last year due to a major customer loss. The lender requires the buyer to provide a detailed plan for replacing that revenue, including new customer contracts or marketing strategies, and revises financial projections to reflect a more conservative growth path.
Insider move
Lenders must avoid funding acquisitions based on unrealistic expectations of turnaround. A decline indicates higher risk, requiring thorough analysis and conservative underwriting to protect the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on change-of-ownership underwriting
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