Glossary

The terms brokers, lenders, and attorneys will use with you, in plain English. Each links to the guide that covers it in depth.

Earnings & valuation

Add-backs: Expenses added back to profit to calculate SDE or adjusted EBITDA because a new owner wouldn’t incur them: the current owner’s salary and perks, one-time costs, non-cash charges. Each one should be documented; unsupported add-backs inflate the price you pay. Read the guide
Cash-on-cash return: Annual cash the buyer takes home divided by the cash they put in (the equity injection). A rough measure of how hard your down payment is working for you.
Customer concentration: How much of revenue comes from the largest customers. A business where one customer is a large share of sales carries more risk, because losing that customer can wipe out the cash flow that services the loan. Read the guide
EBITDA · Earnings Before Interest, Taxes, Depreciation, and Amortization: Earnings Before Interest, Taxes, Depreciation, and Amortization — a profit measure typically used for businesses large enough to have their own management team, unlike SDE. Read the guide
Multiple: Asking price divided by SDE (or EBITDA). A "3x multiple" on $200k of SDE means an asking price around $600k. Read the guide
Owner-operator: A buyer who will run the business day to day, rather than hire a manager. Most SBA-financed acquisitions are owner-operated, which is why SDE (earnings for one working owner) is the usual earnings measure.
QoE · Quality of Earnings report: An independent accountant’s review of whether a business’s reported earnings are real, recurring, and correctly adjusted. More common on larger deals or deals with aggressive add-backs, and sometimes expected by the lender. Read the guide
SDE · Seller’s Discretionary Earnings: Seller's Discretionary Earnings — the cash flow available to one owner-operator, before financing costs. Roughly: profit, plus the current owner's salary and personal perks added back. Read the guide

Financing

DSCR · Debt Service Coverage Ratio: Debt Service Coverage Ratio — cash flow available divided by the loan's annual payments. SBA requires at least 1.25x for a first-time acquisition. Read the guide
Equity injection: The buyer's own cash down payment on the deal. SBA 7(a) acquisition loans require at least 10% of total project cost (purchase price plus closing costs and any working capital rolled into the loan) as an equity injection. Read the guide
Full standby: A seller note that receives no principal or interest payments for a set period. Under SOP 50 10 8.1, a seller note counts toward the buyer’s equity injection only if it is on full standby for the entire term of the SBA loan, and then only for up to half of the required injection. Read the guide
Lender pre-qualification: A lender’s early read on whether you, and the size of deal you’re targeting, are financeable. It isn’t a loan approval, but it tells you what you can afford before you fall for a deal you can’t finance. Read the guide
Personal guarantee: A promise to repay the business loan personally if the business can’t. SBA lenders require one from each owner of 20% or more of the borrowing business. Read the guide
PLP lender · Preferred Lender Program: An SBA lender with delegated authority to approve the SBA guarantee itself instead of sending the file to the SBA for separate review, which can take weeks off the timeline. Read the guide
ROBS · Rollover for Business Startups: An arrangement that lets a buyer use retirement funds (a 401(k) or IRA) toward the purchase without the early-withdrawal penalty, by having the new company sponsor a retirement plan that buys its stock. Legitimate and common, but it carries ongoing plan-compliance obligations. Read the guide
SBA 7(a) loan: The U.S. Small Business Administration’s general-purpose loan program, and the one behind most financed small-business acquisitions. A lender makes the loan and the SBA guarantees part of it; acquisition loans typically run 10 years at a variable rate tied to Prime. Read the guide
SBA SOP 50 10 8.1 · Standard Operating Procedure: The SBA rulebook lenders underwrite 7(a) loans against. The current version, SOP 50 10 8.1, took effect on October 1, 2026. It kept the 2025 version’s seller-note rule and raised the cash-flow floor for first-time acquisitions to 1.25x. Ask your lender which version your loan is underwritten under. Read the guide
Seller note: A loan from the seller to the buyer that covers part of the purchase price, repaid over time — often used alongside an SBA loan to bridge a financing gap. Read the guide
Total project cost: Purchase price plus closing costs plus any working capital or other costs rolled into the loan. The 10% SBA equity injection is calculated against this number, not the purchase price alone. Read the guide

Deal process

Asset purchase vs. stock purchase: In an asset purchase the buyer acquires specific assets and chosen liabilities; in a stock (or membership-interest) purchase the buyer acquires the entity itself, including its history. Most small-business acquisitions are asset purchases. Read the guide
Buy box: Your written acquisition criteria: sector, geography, size (SDE and price range), and deal-breakers. A clear buy box lets you screen most listings out in minutes. Read the guide
CIM · Confidential Information Memorandum: The detailed information packet a broker shares after you sign an NDA: financials, operations, customers, and the seller’s reasons for selling. A marketing document prepared on the seller’s behalf, so read it critically. Read the guide
Earnout: Part of the purchase price paid later only if the business hits agreed targets after closing. Bridges a price gap but is a common source of post-close disputes. Read the guide
Exclusivity (no-shop): A binding LOI provision in which the seller agrees not to negotiate with other buyers for a set period, commonly 60–90 days, while you complete diligence and financing. Read the guide
LOI · Letter of Intent: A mostly non-binding letter setting out the proposed price, structure, and key terms. Typically only a few clauses, such as exclusivity and confidentiality, are binding. Read the guide
NDA · Non-Disclosure Agreement: A confidentiality agreement you sign before a broker or seller shares the CIM and financials. It limits who you can share deal materials with and usually requires returning or destroying them if the deal doesn’t proceed.
Off-market deal: A business acquired without being publicly listed, usually through direct outreach to the owner. Less competition, but more work to source and often less-prepared financials. Read the guide

Diligence

Due diligence: DD = due diligence. You're actively verifying the seller's numbers, contracts, and claims — financials, customer concentration, leases, licenses — before committing further. Read the guide
Key-person risk: The risk that the business depends on one person, often the seller, for customer relationships, licenses, or know-how that may not transfer to you. Read the guide
Lease assignment: Transferring the seller’s lease to the buyer, which usually needs the landlord’s consent. Lenders typically want the remaining lease term to cover the loan. Read the guide
UCC lien search: A search of public filings for creditors with a claim on the business’s assets. Liens must be paid off or released at closing so you receive the assets clear. Read the guide
Working capital peg: The agreed level of working capital (receivables plus inventory minus payables, typically) the seller must deliver at closing, usually set from a trailing average, with a true-up after closing. Read the guide

Closing & legal

APA · Asset Purchase Agreement: The definitive, binding contract for an asset purchase. Your attorney drafts it from the signed LOI; it covers purchased assets, price, representations and warranties, indemnification, and closing conditions. Read the guide
Closing conditions: What must be true before either party is obligated to close: lender approval, landlord consent, license transfers, and SBA requirements such as life insurance assignment and hazard insurance. Read the guide
Escrow / holdback: Part of the purchase price held back for an agreed period after closing to cover indemnification claims, then released to the seller. Read the guide
Indemnification: The seller’s obligation to compensate you for losses from breaches of the purchase agreement or pre-closing liabilities, usually limited by a basket (deductible) and a cap. Read the guide
Non-compete: The seller’s agreement not to compete with the business for a period and area after the sale, commonly a few years. Non-competes tied to the sale of a business are generally more enforceable than employee non-competes. Read the guide
Representations & warranties: The seller’s factual statements in the purchase agreement about the business: financials, contracts, compliance, litigation. If one proves false, indemnification is how you recover. Read the guide

Want the order things happen in? See the stage playbooks. To see the terms at work in a deal, read the case studies.

This guide is for informational and educational purposes only. It does not constitute legal, tax, financial, investment, or lending advice, and is not a substitute for advice from a qualified attorney, accountant, lender, or other licensed professional.