What do lenders need to finance an acquisition?

The document list

This is the list Transparent works from for an SBA acquisition, with the additions every acquisition needs. Conventional term lenders ask for a shorter core set; where a line of credit is part of the financing, the receivables and payables agings join it. Items marked optional strengthen a file but do not hold it up.

The business's financials, and why the latest year decides

Tax returns carry the most weight because they are the version of the numbers the owner signed and filed. SBA lenders verify them against transcripts from the IRS, and conventional lenders treat them as the floor of what the business earns. The P&Ls matter because they show what the returns summarize: owner compensation, one-time costs, related-party rent, the lines where add-backs come from. Where the P&L and the return disagree, the lender will want the difference explained, and an unexplained gap costs more credibility than the gap itself.

Lenders underwrite on the latest full year of figures for every company being bought, never an older one. If the business's most recent return has not been filed, the year-end P&L and balance sheet, with the filing extension, stand in for it. A deal presented on the stronger year before it is not a shortcut: lenders see the date, ask for the current figures, and read the substitution as a warning. Transparent does not take a deal to lenders on an older year when a newer one has closed.

The year-to-date P&L is the lender's check that the business is not already sliding. A strong last year followed by a weaker current year is not a decline in itself, but it needs an explanation — seasonality, a large one-time project in the prior year, a lost customer — and the explanation belongs in the file before the lender asks.

A buyer rarely controls the seller's books. Asking for the latest full year and the year to date as a condition of the letter of intent saves a round of back and forth later.

The letter of intent: what the lender reads in it

Without a signed letter of intent, a lender can talk in generalities but cannot size a loan. The LOI turns a business into a transaction, and lenders read it for specific terms:

• Price and what it buys. Whether real estate, receivables, inventory and cash are in or out changes both the uses of funds and the collateral.
• Asset or stock purchase. The form decides which entity borrows, what liabilities come along and which contracts need consent to transfer; see asset purchase vs stock purchase.
• Seller financing. Amount, rate, term and, in an SBA deal, whether it is on full standby. A note written with payments and counted as equity is a common structural error; see seller notes and SBA's full-standby rule.
• Contingent price. SBA prohibits an earnout to the seller in a change of ownership it finances, and conventional lenders subordinate them; see how earnouts interact with acquisition debt.
• Transition. How long the seller stays, in what role, and whether there is a non-compete. In an SBA complete change of ownership the seller may not stay on as an owner, officer or employee, only as a consultant for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026.

The purchase agreement follows the LOI and the lender will need it before closing, but lenders issue terms on the LOI. The closer the LOI is to the final deal, the fewer surprises the lender finds when the purchase agreement arrives.

The buyer's file

For SBA loans every owner of 20% or more personally guarantees the loan, so every one of them provides personal tax returns for two to three years and a personal financial statement. The lender reads the returns for income outside the business and for obligations the buyer carries, and the PFS for three things: the cash for the equity injection, what is left afterward, and contingent liabilities such as guarantees on other loans. Credit reports are pulled on the same owners.

Experience is the other half. SBA lenders ask each principal to disclose management experience, and a resume that shows the buyer has run a comparable operation — its size, its staff, its customers — carries real weight. A buyer from outside the industry is not ruled out, but the file needs to show why the business will run without the seller: a management team that stays, a transition period, or directly transferable experience.

Lenders also look at the buyer's household. The business must cover its own debt and a reasonable salary for the new owner, and the owner's household must live on that salary alongside any personal debts. A buyer with large personal obligations can sink an otherwise sound deal at this step.

The debt schedule, on both sides

The target's debt schedule answers a question every lender asks first: what else has a claim on this business? It lists each loan, lease, line and advance with the lender, balance, payment, maturity and collateral, alongside copies of the notes. It tells the lender what must be paid off at closing, which liens must be released, and whether anything will survive the sale. Liens the seller has forgotten about show up in the lender's lien search regardless, and they are far easier to deal with when they are on the schedule already. Where a business has been carrying merchant cash advances, the schedule matters twice over, because advances often carry liens on receivables. SBA will not refinance an active merchant cash advance or a factoring agreement; from 1 October 2026 an advance becomes eligible only once it has been converted to a term loan that has amortized for at least 24 months with no new advance since.

Many small businesses have never written a debt schedule down. It can be built from the loan statements and confirmed by the owner; what matters is that it is complete and that it ties to the balance sheet.

What changes with the type of lender and the deal

The core file is the same whoever lends; the edges move.

• SBA 7(a) lenders want the full list above, verify the returns, and require an independent business valuation from a qualified appraiser where the amount financed, less appraised real estate and equipment, exceeds $250,000 or buyer and seller are related; the loan for the purchase cannot exceed it. From 1 October 2026 they also require financial due diligence on every change of ownership, and a quality of earnings report on acquisitions of $3 million or more excluding real estate; see how SBA 7(a) loans finance a business acquisition.
• Conventional term lenders start from the P&L, balance sheet, year to date and debt schedule, and may add an AP aging. On larger deals they often want a quality-of-earnings review, and they ask for projections to test covenant headroom; see SBA 7(a) vs a conventional acquisition loan.
• Asset-based lenders, where a line is part of the financing, add an AR aging by customer with days outstanding, an AP aging, and an inventory report if inventory is in the borrowing base.
• More than one target. Each company being bought provides its own latest full year, and lenders want each company's figures shown on their own before any combined view, so they can see what each contributes and test each set of adjustments; see add-on acquisition financing.

Once the documents are in

A lender does not read a pile of documents; it reads a credit story built from them. Once a buyer's documents are in, Transparent builds the full lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day. Built by hand, the same package takes at least a week. The model carries the sources and uses, the coverage and the seller-note structure; the memo addresses the questions a credit officer will raise before they raise them. What is in each piece is on the package, and how we read the documents first is on how we underwrite.