Remodeling companies are usually bought with an SBA 7(a) loan, because most of the price is goodwill and SBA finances goodwill over up to 10 years with an equity injection of at least 10% of total project costs for a complete change of ownership. Larger, multi-crew firms can use conventional cash-flow debt. Lenders underwrite where the leads come from and who closes the sale, the signed backlog and the customer deposits attached to it, gross margin job by job, who holds the contractor license, and how the business performed when housing and interest rates turned against it.
- Usual structure
- SBA 7(a), with buyer equity and often a seller note; conventional cash-flow debt for larger firms
- Collateral
- Thin: trucks, tools and receivables; SBA lenders often add the owners' personal real estate
- What lenders probe hardest
- Lead sources, who sells, backlog and deposits, job-level margins, the license qualifier
- Closing issue most often missed
- Customer deposits the seller has collected for work the buyer must still do
- Documents beyond the standard list
- Work-in-progress schedule, backlog with deposits, job cost reports, lead source report
A business that has to sell itself again every year
An HVAC contractor has service agreements and a plumber has repeat calls. A remodeler has neither. A kitchen is redone once in a long while; a customer who was delighted last year is unlikely to buy again for many years. Every year's revenue has to be sold fresh, so the thing a lender is really financing is the machine that produces signed contracts: the lead flow, the people who turn leads into design agreements and contracts, and the reputation that keeps the phone ringing. The SBA lending data for residential remodelers shows how active SBA lenders are in the trade and how its acquisition loans compare with the rest of the program.
| Lead source | What the lender asks | Does it transfer to the buyer? |
|---|---|---|
| Past-customer and neighbor referrals | Share of jobs from referrals, and review ratings over time | Largely, if the company name, crews and quality stay the same |
| Designers, architects and real estate agents | How many sources, and whose relationship each one is | Only if the relationships are with the company, not the seller personally |
| Showroom and walk-in traffic | Location, lease terms, conversion rate | Yes, with the lease |
| Paid lead platforms and digital marketing | Cost per lead and per signed job, by year | Yes, but it can be bought by any competitor, and costs rise |
| Home shows and events | Jobs and revenue attributable to each | Yes, with the booth and the staff who work it |
Then comes the question of who sells. In a great many remodeling companies the seller meets the homeowner, designs the job, prices it and closes it. A buyer who cannot do those things inherits a backlog and very little after it. Lenders want either a buyer who has sold and estimated remodeling work, or a salesperson or designer already in place who is staying. See industry experience requirements.
Backlog, deposits and the money that belongs to the jobs
Remodeling customers pay deposits at signing and progress payments as work proceeds. That is good for a remodeler's cash, and it is the most commonly missed issue in buying one. A deposit collected for work not yet done is not the seller's money; it is an obligation to finish the job. If the seller has already spent those deposits, the buyer will do the work with no cash coming in for it.
A simple case: the seller has collected deposits of 300 on signed jobs that have not started. After closing, the buyer spends 300 on labor and materials to deliver them and receives only the remaining progress payments. Unless the price is reduced by 300, or 300 of cash is left in the business at closing, the buyer funds work the customer already paid the seller for. Lenders look for this in the working capital peg and the closing statement, and they will not treat the backlog as an asset without it.
| Item on the books | What it means | How it is usually handled at closing |
|---|---|---|
| Signed backlog | Contracts to be performed after closing | Transferred to the buyer with the deposits that go with it, or a price credit for deposits already spent |
| Customer deposits | Cash received for work not yet done; a liability | Left in the business, or deducted from the price |
| Billings in excess of work done (over-billings) | Cash collected ahead of progress on jobs underway | Treated like deposits |
| Work done but not yet billed (under-billings) | Work performed that the buyer will bill | Counted as an asset if the job is profitable and the customer is sound |
| Warranty and callback obligations | Fixes owed on past jobs | Stay with the company in a stock purchase; allocated by agreement in an asset purchase |
This is also why the way the books are kept matters. A remodeler on cash-basis books can look most profitable in the months when deposits arrive and least profitable when the work is done. Lenders ask for a work-in-progress schedule and prefer accrual figures, or at least a reconciliation between the two; see cash vs accrual financials for lenders.
Reading the earnings job by job
Annual totals tell a lender little about a remodeler. What they ask for are job cost reports for completed jobs: contract price, change orders, labor, materials, subcontractors and gross margin, by type of project. A firm whose bath and kitchen jobs earn steady margins but whose large additions sometimes lose money is a different credit from one whose margins hold across every job type. Lenders also test that the job files add up to the income statement, which catches costs that were never assigned to a job.
Add-backs are narrower than sellers expect. The seller's truck and personal expenses can be added back with support. The seller's own labor cannot simply be added back: if the seller sold, designed and managed jobs, the lender deducts the cost of hiring someone to do each of those roles. Coverage is then tested on the adjusted figure. SBA requires at least 1.15x before 1 October 2026, and from that date a change of ownership must show 1.25x on historical results under SOP 50 10 8.1; conventional banks commonly look for at least 1.25x. See EBITDA add-backs.
Remodeling demand moves with home values, home equity borrowing and interest rates, so lenders look beyond the last good year. They want to see how revenue, backlog and margins behaved in a slower year, and whether the business could still have covered its payments. A company whose latest full year was a soft one is covered in financing an acquisition with declining earnings.
The license, the crews and the insurance
Many states license remodelers or require home improvement contractor registration, often with a bond, and the license is frequently held through a qualifying individual. In a small remodeler that individual is usually the seller. The buyer needs to know before closing who will qualify the license afterward. Firms working in older homes also need renovation certification for lead-safe work practices, held at the firm level and by trained staff.
Most remodelers use a mix of employees and subcontractors. Lenders ask which trades are in-house, how long the lead carpenters and project managers have been there, and how dependent the company is on a few subcontractors. Heavy use of workers paid as contractors who look like employees is a classification risk the buyer inherits in a stock purchase. Lenders also ask for general liability and workers' compensation certificates and the claims history, since a single serious claim can change the cost of coverage.
A remodeler's backlog is only worth something if someone licensed, insured and staffed will build it after closing.
How the deal is usually structured
SBA 7(a) is the common route because it finances goodwill, which is most of what a remodeler sells for, over up to 10 years, with at least 10% of total project costs as the buyer's equity in a complete change of ownership. Every owner of 20% or more personally guarantees the loan. Because a remodeler has few hard assets, SBA lenders will usually also take a lien on the owners' personal real estate where there is meaningful equity; see personal residence collateral on SBA loans.
Sellers of remodeling companies often want part of the price tied to how the backlog performs. SBA prohibits an earnout to the seller in a change of ownership it finances, so any deferred part of the price has to be a fixed seller note, owed whatever the backlog does. The buyer's protection against unfinished jobs is the treatment of deposits in the price, not a contingent payment. A seller note can supply up to half of the required equity only if it is on full standby, no principal or interest payments, for the life of the SBA loan; a note that pays is allowed but counts as debt in the coverage test. See earnouts and acquisition debt and seller notes and SBA's full-standby rule.
The seller's role after closing is limited too. In a complete change of ownership the seller may not stay as an owner, officer or employee, including as the salesperson; the seller may consult for up to 12 months, or up to 24 months from 1 October 2026. Where the business truly needs the seller selling for longer, a partial change of ownership or a conventional structure may fit better. Where the amount financed, less appraised real estate and equipment, exceeds $250,000, SBA also requires an independent business valuation, and the loan cannot exceed it; from 1 October 2026 financial due diligence is required on every change of ownership.
Larger design-build and multi-crew firms, and buyers combining several remodelers, can use conventional senior debt, commonly 2x to 3.5x EBITDA for lower-middle-market companies; lenders at that size want steadier margins and a management team beyond the owner. A working capital line helps where large jobs require materials before progress payments arrive; see lines of credit for general contractors.
What goes in the file
The standard acquisition list is in what lenders need to finance an acquisition: business tax returns for two to three years, P&L, balance sheet, a year-to-date P&L, the target's latest full year of figures (never an older year), the debt schedule, the letter of intent, and personal returns and a personal financial statement for each 20% owner. For a remodeler, lenders also want:
- A current work-in-progress schedule, with contract value, costs to date, billings and estimated margin by job.
- The signed backlog, with deposits received on each job.
- Job cost reports for completed jobs, by project type, for the last two to three years.
- A lead source report with marketing spend and signed jobs by source.
- License, registration and bond details, and who the qualifier will be after closing.
- Insurance certificates and claims history, a staff roster, and a list of regular subcontractors.
With those in hand, Transparent builds the lender package, the financing model, lender presentation, blind teaser and underwriting memo, in a day, and takes it to lenders in its book that finance contractors. See the package and how we underwrite.
Common questions
- Can I buy a remodeling company with an SBA loan if I have never worked in construction?
- It is possible but harder. Lenders want selling, estimating and project management experience somewhere in the business after closing. A buyer from outside the trade usually needs a staying salesperson, designer or project manager, and the lender will underwrite that person closely.
- What happens to customer deposits when a remodeling company is sold?
- Deposits for work not yet done are owed to the jobs. The buyer should receive them in cash at closing or as a reduction in the price. Otherwise the buyer does the work without the money that was paid for it.
- The seller wants part of the price paid only if the backlog is completed. Can SBA finance that?
- Not as an earnout; SBA prohibits earnouts to the seller in a change of ownership it finances. The deferred part of the price can be a fixed seller note that does not depend on the backlog; it counts toward the equity only if it is on full standby for the life of the SBA loan.
- Is a remodeler that uses mostly subcontractors financeable?
- Yes. Lenders look at how dependent the company is on a few subcontractors, whether those relationships are the company's or the seller's, and whether any workers treated as subcontractors should really be employees.
- Will a lender count the signed backlog as collateral?
- No. Backlog is evidence of future revenue, not collateral. Lenders read it to judge the first months after closing, and they look at the deposits attached to it as a liability the buyer takes on.