Seller Financials: What a Lender Needs to See Before You Can Buy a Business

You've found the business. The price is agreed in principle, the LOI is drafted, and you're ready to move. Then the lender asks for the seller's last three years of tax returns, a year-to-date P&L, a balance sheet, and an AR aging — and the seller, who has run the company out of a shoebox and a bookkeeper's spreadsheet for twenty years, goes quiet.

This is where a surprising number of acquisitions stall. Not because the buyer is weak or the business is bad, but because an acquisition loan is underwritten on the seller's numbers, and nobody planned for how hard those numbers would be to get, or how different they'd look once a lender read them. FTI Capital is a broker and advisor, not a lender. A big part of what we do on acquisitions is get the seller's financials into a shape an underwriter can actually say yes to, before the deal clock starts running.

The 30-second version

Why the seller's paperwork matters more than yours

On a startup loan, the lender is betting on the borrower's plan. On an acquisition, the lender is betting that the business's existing cash flow will keep coming in and cover the new debt payment with room to spare. Your credit, experience, and down payment matter (see our post on what makes a strong SBA loan application), but the repayment source is the company you're buying, and the only evidence of that cash flow is the seller's records.

So the question an underwriter is really asking is simple: can we verify, from documents we trust, that this business generates enough cash to pay its new owner's debt? Everything on the list below exists to answer that.

What lenders commonly ask the seller for

Exact lists vary by lender and deal size, but for an SBA 7(a) acquisition, expect most of this:

• Business federal tax returns, typically for the last three years. These are the backbone of the cash-flow analysis. Lenders commonly verify them directly with the IRS through a signed transcript request, so the returns in the package need to match what was actually filed.
• Interim financial statements — a year-to-date P&L and balance sheet, plus the same period from the prior year so the trend can be compared. Lenders set limits on how old interims can be, so these may need refreshing during the process.
• Add-back support. Every adjustment you and the seller want counted (owner's salary and perks, one-time expenses, personal items run through the business) needs paper behind it.
• AR and AP agings, so the lender can see who owes the business money, how reliably they pay, and what the business owes.
• A debt schedule covering everything the business currently owes, most of which will be paid off at closing.
• The real estate lease (or the property details, if the real estate is part of the deal) and confirmation it can be assigned or renewed for long enough to support the loan.
• Key operating documents — major customer contracts, licenses and permits, payroll summaries, and sometimes customer-concentration detail if a few accounts drive most of the revenue.
• The seller's side of the deal terms — the signed LOI or purchase agreement, and the terms of any seller note (see seller financing in an SBA acquisition).

Tax returns vs. the P&L: the reconciliation that sinks deals

The most common problem we see isn't missing documents. It's documents that don't agree with each other. The internal P&L shows one level of profit; the tax return shows something lower. The broker's listing shows a third figure. The buyer has been pricing the deal off the most flattering one.

Lenders generally build their cash-flow analysis from the tax returns, then accept documented adjustments on top. A few things follow from that:

• Unreported income doesn't count. "The business does another $100,000 in cash that isn't on the books" is a sentence that typically lowers a lender's confidence rather than raising the valuation. If it isn't on the return, plan as if it doesn't exist.
• Differences need an explanation, in writing. Timing differences, accrual vs. cash accounting, a year-end adjustment by the CPA. Most gaps have a legitimate reason. What hurts is a gap nobody can explain.
• The trend matters as much as the level. Three years of steady or rising returns reads very differently from a strong year sandwiched between two weak ones. If the most recent year dipped, be ready to say why and show that it's recovered in the interims.
• Price follows the verifiable number. If the verified cash flow can't support the debt at the agreed price, the realistic options are usually a lower price, more equity, more seller financing, or a different structure. Finding that out in week one is far cheaper than finding it out in week eight.

Add-backs: where the real negotiation happens

Small-business owners legitimately run some personal and discretionary costs through their companies, and lenders do recognize reasonable adjustments. But each one is a claim that has to be proven, and lenders tend to be conservative about what they'll accept.

• Usually workable with support: the seller's own salary and payroll taxes (replaced by your salary, which the lender will also account for), clearly personal expenses such as a family vehicle or personal insurance, and genuinely one-time costs like a lawsuit settlement or a one-off repair.
• Usually questioned: "one-time" expenses that appear every year, costs the business will clearly still need after the sale, and add-backs supported only by the seller's recollection.
• Remember the replacement cost. If the seller worked sixty hours a week and you plan to hire a manager, the lender will typically count that manager's salary against the cash flow. Removing the seller's pay doesn't make that work free.

The year-end timing problem

If you're signing an LOI this fall and aiming to close around the turn of the year, there's a specific trap: the business's year ends partway through your deal. Underwriting that started on this year's interims can turn into a request for the full-year numbers before closing, and the seller's CPA may not have finished the year-end statements, let alone filed the return.

1. Ask early how the lender will handle the year-end. Some will close on recent interims; others will want internally prepared year-end statements, a CPA-reviewed figure, or more. Knowing which in advance lets you plan instead of waiting.
2. Get the seller's bookkeeper and CPA engaged now. A clean, prompt year-end close is a favor to the buyer, and it's worth asking for explicitly.
3. Watch for stale interims. A package assembled in October can go stale by January. Plan for at least one refresh.
4. Budget the time honestly. Our post on the SBA loan timeline from LOI to closing covers where the weeks go and what a year-end close really takes.

Getting the seller to cooperate

Most sellers want the deal to close; many have simply never been through a lender's document request and underestimate it. A few things make the difference:

• Write document access into the LOI. A clause committing the seller to provide financial records and to cooperate with lender diligence, including signing tax-transcript requests, avoids an awkward negotiation later.
• Send one complete list, once. A drip of requests over six weeks feels like distrust. A single organized checklist at the start feels like a process.
• Explain why. Sellers are more forthcoming when they understand the lender is verifying cash flow so the buyer can pay them, not auditing them personally.
• Respect confidentiality. Use the NDA, limit who sees what, and keep employees out of it until the seller decides otherwise.
• Involve the seller's advisors. If a business broker or CPA represents the seller, they can often produce in days what the seller would take weeks to find.

A buyer's checklist before you submit

• Three years of business tax returns, complete with all schedules.
• Year-to-date interim P&L and balance sheet, plus the comparable prior-year period.
• A one-page reconciliation of returns to P&L, with each difference explained.
• An add-back schedule with documentation for every line.
• Current AR and AP agings and a full business debt schedule.
• The lease, or a clear path to assigning or renewing it.
• The signed LOI, including seller-note terms if any.
• Your own package: resume, personal financial statement, personal tax returns, and proof of your down payment (see how much down payment you need to buy a business).

How this works with FTI

1. Consult. A free call to look at the deal and the seller's numbers as they stand, including a straight read on whether the verifiable cash flow supports the price.
2. Structure & package. We work with you (and, where it helps, the seller's CPA or broker) to assemble the seller documents, reconcile the returns, and support the add-backs so the package answers the underwriter's questions before they're asked.
3. Match & close. We take it to lenders whose appetite fits the industry and deal size, and manage the process through to funding. We've arranged $41.3M+ across 28 funded deals in 2025–2026.