A business should make enough profit, its seller's discretionary earnings (SDE), to cover the loan payment, pay you a fair salary, and still leave a cushion. In practice that means a DSCR of at least 1.15×, and ideally 1.25× or more, after you subtract a market-rate owner's wage. The exact dollar figure depends on the price and financing, but "does the profit cover the debt and pay me?" is the real test.
The test that matters: can it carry the debt?
Raw profit isn't the point, profit relative to the loan is. Here's the same $130,000 business under two prices:
| Scenario | SDE | Owner wage | Debt service | DSCR |
|---|---|---|---|---|
| Priced right | $250,000 | $70,000 | $120,000 | 1.50× |
| Overpriced | $250,000 | $70,000 | $170,000 | 1.06× |
Same profit, but overpaying pushes the DSCR below the lender's floor. Test any deal with the DSCR calculator.
A practical minimum
There's no universal floor, but many first-time buyers target businesses with at least $150,000, $250,000 of SDE so the cash flow can support both a loan payment and a living income. For reference, the U.S. median main-street deal has roughly $350,000 of SDE. Understand the metric in our SDE deep dive and what SDE means.
Consistency beats a single big year
How much matters, but so does how reliable it is. A business with steady, verifiable profit over three years is far safer than one with a single spike. Turnaround or unprofitable businesses rarely qualify for SBA financing and carry much more risk, most first-time buyers should look for consistent earnings, confirmed by a quality of earnings review.
Frequently asked questions
Enough SDE to cover the loan, pay you a fair salary, and leave a cushion, a DSCR of at least 1.15×, ideally 1.25×+, after a market-rate owner's wage.
No universal minimum, but many buyers target at least $150,000, $250,000 of SDE. The U.S. median main-street deal is about $350,000 of SDE.
Generally not for a first deal. Unprofitable businesses rarely qualify for SBA financing and carry far more risk. Target consistent, verifiable profit.
