A sources and uses table lists every dollar an acquisition needs at closing, the uses, and every dollar that pays for them, the sources. The two columns must be equal. Uses include the purchase price, working capital, closing costs, lender and SBA guaranty fees, debt being paid off and any reserves a lender requires. Sources include the senior loan, any line drawn at closing, a seller note, rollover equity and the buyer's cash. Lenders read it first because it shows the whole deal on one page, and a missing line, usually fees or working capital, is what forces a restructure late in the process.
- The rule
- Total sources equal total uses, to the dollar
- Uses most often left out
- Working capital, closing costs and the SBA guaranty fee
- SBA equity injection
- At least 10% of total project costs in a complete change of ownership
- Seller note as equity
- Up to half the required injection, only on full standby for the life of the loan
- Who builds it
- The buyer or their advisor, before the letter of intent is signed
One page, two columns, one total
A sources and uses table is the financing plan of an acquisition written as arithmetic. The right-hand column, uses, is everything the transaction has to pay for on the day it closes. The left-hand column, sources, is where each of those dollars comes from. They must balance exactly, because on the closing date the closing agent disburses the uses from the sources and there is nowhere else for money to come from.
Lenders turn to it before the model and before the memo because it answers the questions that decide their appetite in seconds: how big is the loan, how much of the price the buyer is paying with their own money, whether the seller is financing part of it and on what terms, and whether anything is being funded that the lender cannot or will not fund. A credit officer who finds the table incomplete assumes the rest of the file is too. It is the first page of every lender package Transparent builds, and the glossary entry has the short definition.
The uses: everything that has to be paid at closing
- Purchase price. The price in the letter of intent, ideally split by what is being bought: goodwill, equipment, inventory and any real estate. The split matters because each piece has its own maturity and collateral value, and the purchase price allocation will eventually be agreed with the seller anyway.
- Working capital. Cash the business needs after closing to pay staff and suppliers before customers pay it. In a cash-free, debt-free deal the seller takes the cash, so the buyer has to put some back. Working capital at close covers how much.
- Debt being paid off. The target's loans, equipment notes and any liens that must be released at closing. Paying off seller debt at closing explains how these are handled.
- Closing costs. Legal fees on both the purchase and the loan, the business valuation, accounting and quality of earnings work, environmental reports, title and recording costs.
- Lender and SBA fees. On a 7(a) loan, SBA's guaranty fee, which is usually financed in the loan, plus the lender's own closing costs.
- Reserves. Some senior lenders require an interest or debt service reserve funded at closing, and some deals fund an escrow for known issues. Each is a use, even though the money stays in the deal.
The sources: who pays for it
- Senior loan. An SBA 7(a) loan of up to $5 million, or a conventional term loan from a bank or private credit fund.
- Line of credit drawn at closing. Common in conventional deals, where a revolver funds working capital rather than the term loan. Using a revolver in an acquisition covers the mechanics.
- Seller note. Part of the price, paid to the seller over time. On an SBA loan, a note on full standby for the life of the loan can count toward equity; a note with payments is debt and counts in debt service.
- Rollover equity. The seller keeps a stake in the business instead of taking all the price in cash. It appears as a source with no cash attached. It is not available in an SBA complete change of ownership, where the seller may not stay on as an owner. Rollover equity covers how lenders read it.
- Buyer cash equity. The buyer's own money, and any investors'. Lenders want to see where it comes from: bank statements, a gift letter or proof of the retirement-plan structure where one is used.
An SBA acquisition, worked through
In plain numbers, here is a complete table for a purchase financed with a 7(a) loan:
| Uses | Amount | Sources | Amount |
|---|---|---|---|
| Purchase price | 4,000 | SBA 7(a) loan | 4,050 |
| Working capital | 320 | Seller note on full standby | 225 |
| Closing costs and professional fees | 110 | Buyer cash | 225 |
| SBA guaranty fee | 70 | ||
| Total uses | 4,500 | Total sources | 4,500 |
The equity math follows directly from the total. For a complete change of ownership, SBA requires an equity injection of at least 10% of total project costs: 450 here. Seller financing can count for up to half of that, 225, and only if it is on full standby, with no principal or interest paid for the life of the SBA loan. The buyer's cash covers the rest. The injection is measured against total project costs, which is why every cost that belongs in the project raises the equity required, not just the price. How much equity you need goes into what else can count.
Two more tests sit behind the table. SBA requires an independent business valuation whenever the amount financed, less appraised real estate and equipment, exceeds $250,000, and the loan for the purchase cannot exceed it. And the debt service on 4,050 has to be covered: from 1 October 2026 a change of ownership must show at least 1.25x on historical results, above SBA's general minimum of 1.15x.
The line that goes missing
Now suppose the buyer built the first version of the table from the letter of intent alone. Uses were the purchase price, 4,000. The injection was 10% of that, 400: 200 in cash and a standby seller note of 200. The loan was 3,600, and coverage was tested on 3,600.
Then the lender's underwriter added what was missing: working capital of 320, closing costs of 110 and 70 for the guaranty fee. Total project costs rose to 4,500. The required injection rose to 450, and because the standby note can count for no more than half of it, the buyer's cash had to rise to at least 225 even if the seller agreed to lift the note to 225. The loan rose to 4,050, an increase of an eighth, and every one of those dollars adds to annual debt service.
A table that leaves out fees and working capital has not avoided them. It has moved them to the end of the process, where they cost the most to fix.
If the deal had cleared 1.25x with little room on 3,600, it may not clear it on 4,050. At that point the options are the same ones the buyer had at the start, a lower price, more cash, a larger standby note or a smaller working capital need, except that the letter of intent is signed, the seller is expecting a date, and the financing contingency is running. Restructures that late are where deals are lost, and nearly all of them trace back to a line that was not in the first table.
A conventional deal looks different
Outside SBA, the table has more sources and the senior loan is sized by leverage rather than by the purchase price. Senior cash-flow lenders to lower-middle-market companies commonly lend 2x to 3.5x EBITDA, so the senior loan is fixed first and everything else fills the gap. For a business with EBITDA of 2,000:
| Uses | Amount | Sources | Amount |
|---|---|---|---|
| Equity purchase price to the seller | 8,800 | Senior term loan | 6,000 |
| Repayment of the target's existing debt | 1,200 | Revolver drawn at closing | 200 |
| Transaction fees and quality of earnings | 300 | Subordinated seller note | 1,000 |
| Cash to the balance sheet | 200 | Rollover equity | 1,000 |
| Interest reserve required by the lender | 100 | Buyer and investor cash | 2,400 |
| Total uses | 10,600 | Total sources | 10,600 |
The seller note here is subordinated to the senior loan under terms the lender sets, covered in seller note subordination terms. Rollover equity reduces the cash the buyer needs without adding debt. Fees are usually paid with equity rather than borrowed. And the revolver draw matches the cash put on the balance sheet: it funds working capital, not purchase price, which is why an asset-based lender sizes it from the borrowing base rather than from earnings.
Which uses a lender will finance
| Use | SBA 7(a) | Conventional senior lender |
|---|---|---|
| Goodwill | Yes, over up to 10 years | Yes, within its leverage limit |
| Real estate | Yes, over up to 25 years | Often through a separate real estate loan |
| Equipment | Yes; from 1 October 2026, over no more than 10 years in a change of ownership | Yes, or through a separate equipment loan |
| Working capital | Yes, within the same loan | Usually through a revolver rather than the term loan |
| SBA guaranty fee and loan closing costs | Commonly financed in the loan | Not applicable; loan fees often paid from equity |
| A distribution to the owners | Never | Rarely, and only under the credit agreement's terms |
From 1 October 2026, change-of-ownership 7(a) loans amortize over no more than 10 years except the real estate share, so separating real estate in the uses column changes the payment, and with it coverage. Blended maturity explains how a loan with several kinds of use is amortized. For deals too large for one SBA loan, acquisitions above the SBA limit shows how the table changes.
Transparent's financing model starts from this table and carries every line through to coverage, so a change to working capital or fees shows up in the loan and the ratio immediately. Once the documents are in, the full package is built in a day.
Common questions
- Do closing costs and working capital count toward SBA's total project costs?
- The equity injection is measured against total project costs, which covers what the project needs to close and operate, not just the purchase price. Leaving working capital and costs out understates the equity the lender will require.
- Can the SBA loan fund working capital in an acquisition?
- Yes. A 7(a) loan can include working capital alongside the purchase price, in the same loan. Conventional lenders more often provide it through a line of credit.
- Can a seller note count as my equity?
- On an SBA loan, for up to half of the required injection, and only if the note is on full standby, with no principal or interest paid, for the life of the SBA loan. A note with payments is allowed but counts as debt.
- Where does an indemnity escrow go in the table?
- Inside the purchase price. The price is funded in full at closing, and part of it is paid to an escrow agent instead of the seller. Escrows and holdbacks covers how lenders treat it.
- When should the table be built?
- Before the letter of intent is signed, from a first estimate of every line. It will be refined in diligence, but a price agreed without it is a price agreed without knowing how it will be paid.