2026-02-10
How SBA Lenders Actually Think About Risk
How do SBA lenders evaluate risk?
SBA lenders evaluate risk primarily through cash flow durability, management execution, and deal structure. Collateral is important, but it rarely determines approval on its own.
Understanding how lenders think helps borrowers structure stronger, more approvable deals.
Cash flow is the foundation
Lenders assess whether historical and projected cash flow can comfortably service debt, typically targeting a minimum 1.15x debt service coverage ratio.
Management experience matters
Strong operational experience reduces execution risk. Lenders look for relevant industry knowledge, not just ownership ambition.
Deal structure reduces risk
Elements that strengthen SBA deals include:
- Seller notes on standby
- Adequate equity injection
- Conservative projections
- Clean ownership transitions
Learn how to strengthen your deal: Optimal SBA 7(a) Deal Structures for Business Acquisitions
Collateral supports, but rarely approves
Collateral improves recovery but does not compensate for weak cash flow or inexperienced management.
What makes lenders nervous
- Overly aggressive projections
- Thin margins
- Inexperienced buyers
- Complex structures without professional support
FAQs
