Most buyers treat a loan approval as a second opinion. If the bank said yes, the deal must be good.

It does not work that way. A lender approval answers one question: can this business, as it ran last year, repay the loan? It does not answer whether the business will run that way next year.

This week we walk one deal through every test an SBA lender runs. It passes all of them. Then we show what the bank's tests were never built to see, and why the buyer should have renegotiated or walked.

This is a composite deal built from transactions we have worked on. Names, locations, and figures are changed.

Business: A group of three self-service laundromats in the Southeast, with wash-dry-fold service at two of them

Equipment: 142 washers and dryers across the three stores, average age 13 years

Real estate: All three stores leased

Asking price: $1,600,000

Revenue (last fiscal year): $1,380,000

SDE (last fiscal year): $398,000

Implied multiple: $1,600,000 ÷ $398,000 = 4.02x SDE ✓

The buyer: a former regional operations manager for a retail chain, with a strong credit score and $260,000 in liquid savings.

Laundromats look simple to buyers. Steady demand, few employees, no inventory. That simplicity is exactly why this one got through.

Under SBA SOP 50 10 8.1, in effect since October 1, 2026, the lender must prove coverage on historical earnings: the last fiscal year, or the average of the last two. Projections cannot be used.

The lender started from the tax return:

Net income: $268,000

Depreciation added back: $22,000

Interest on the seller's old equipment loan added back: $18,000

Owner's salary added back: $90,000

SDE: $398,000 ✓

Then the lender subtracted a salary for the new owner, who will run all three stores:

New owner's salary: ($72,000)

Earnings the lender underwrites: $326,000 ✓

The books were clean. Card and app payments tied to the bank statements. Nothing about the earnings looked inflated.

For an initial acquisition, the SBA floor is now 1.25x coverage, up from 1.15x. Many lenders want closer to 1.35x.

Price $1,600,000 + closing costs $56,000 (3.5% of price) + working capital $40,000 = project cost $1,696,000 ✓

Buyer equity (10% of project cost): $169,600 ✓

SBA loan: $1,526,400 over 10 years at an illustrative 9.75% (Prime plus 2.75%; the SBA cap on a loan this size is currently 10.00%)

Annual debt service: $239,529 ✓, or about $19,961 a month

DSCR: $326,000 ÷ $239,529 = 1.36x ✓

Above the 1.25x floor, and above the 1.35x that many lenders like to see.

Appraisal: the independent valuation came in at $1,600,000, so total debt of $1,526,400 sat under the appraised value. No gap to fill.

Leases: many lenders want the lease, including renewal options only the borrower controls, to run at least as long as the loan. Each store had renewal options that ran past the 10-year term. The box was checked.

Buyer: relevant management experience, a personal guarantee, and $90,400 left in the bank after his equity.

Verdict: approved.

Every test the bank ran, the deal passed. The buyer closed.

Every one of those tests looks backward. Three costs were sitting in the documents that only show up going forward.

1. The machines are at the end of their life

Industry sources put the prime working life of commercial laundromat equipment at roughly 12 to 15 years. These machines averaged 13. Repairs and maintenance had already climbed from $27,000 to $41,000 in two years, up 51.9%.

A distributor quote to re-equip all three stores came to $720,000, about $240,000 a store. Spread over a 12-year life, that is a real annual cost of $60,000. Depreciation on the tax return was $22,000, and the lender added even that back.

2. Two of three leases reset within two years

The current terms at Store B and Store C expire within 24 months. The renewal options satisfied the lender, but the renewal rent was "fair market rent at the time of renewal." Both stores were paying rates set more than a decade ago.

Store B: $52,800 a year today, about $76,800 at current market rent, an increase of $24,000 (45.5%).

Store C: $45,600 a year today, about $66,000 at market, an increase of $20,400 (44.7%).

Combined: $44,400 a year in higher rent, starting within 24 months of closing.

3. Utilities are rising

Water, sewer, gas, and electricity are among a laundromat's biggest costs. Owners interviewed by one industry trade publication reported anywhere from about 7.5% to 23% of revenue. Here they ran $207,000 last year, 15% of revenue. Utility rates in parts of the Southeast have been climbing, and the buyer's own forecast after calling the providers was about 12% higher. That is $24,840 a year.

The forward-looking bridge:

Earnings the lender underwrote: $326,000

Equipment replacement reserve: ($60,000)

Lease resets at Stores B and C: ($44,400)

Utility increase: ($24,840)

Forward earnings: $196,760 ✓

Forward DSCR: $196,760 ÷ $239,529 = 0.82x ✓

Any one of these items alone would not sink the deal. The equipment reserve alone takes coverage to 1.11x. The leases alone, 1.18x. The utilities alone, 1.26x. Together they put it under 1.0x.

Once both leases reset and he sets aside the equipment reserve, the business no longer covers its loan payment. The gap is $42,769 a year ✓, about $3,564 a month.

The buyer has two ways to fill it. He can pay himself $29,231 instead of $72,000 for running three stores. Or he can draw down his $90,400 of reserves, which lasts about 25 months.

If he skips the reserve, coverage is 1.07x, a cushion of about $17,231 a year. That lasts until the first store needs new machines, and re-equipping a store is a $240,000 check written at once.

The bank is still protected. It holds a personal guarantee and a lien on the business assets. The buyer is the one exposed.

Every one of these numbers was knowable before the LOI. The equipment ages were on the asset list. The renewal clauses were in the leases. The utility bills were in the expense detail.

Here is the deal that works on forward numbers. With the leases extended at a negotiated rent, forward earnings support a price of about $1,117,000 at 1.25x coverage. Round down to $1,100,000.

Leases: renewal at market rent → signed 10-year extensions at Stores B and C as a closing condition, with a negotiated combined increase of $30,000 instead of $44,400

Equipment: buyer funds the replacement → $240,000 equipment credit off the price, the cost of re-equipping one store

Price: $1,600,000 → $1,100,000 ($500,000 lower, about 31%), the most that forward earnings can carry at 1.25x coverage. At the table, the buyer framed it as a $240,000 equipment credit, the cost of re-equipping one store, plus $260,000 for the rent and utility increases.

At $1,100,000, the numbers change:

Project cost: $1,178,500

Buyer equity: $117,850

SBA loan: $1,060,650

Annual debt service: $166,442 ✓

Forward earnings with the negotiated leases: $211,160 ✓

Forward DSCR: $211,160 ÷ $166,442 = 1.27x ✓

Historical DSCR, the one the bank tests: 1.96x ✓

The buyer would also keep $142,150 in reserve instead of $90,400.

That price is 2.76x SDE. The seller would likely say no. That is fine. If the seller will not sign lease extensions, credit the equipment, or move the price, the answer is to walk. A deal that only works on last year's numbers is not a deal.

An SBA approval means the bank is covered. It does not mean the buyer got a good deal.

The new rules make lenders test historical earnings only, which is reasonable for the bank. But a buyer has to live in the future. The lender asks whether last year paid for the loan. The buyer has to ask whether next year will, and the year after the leases reset.

In businesses that run on equipment and leased locations, the gap between those two questions is usually where the money is lost.

This laundromat group was easy to find. It was listed, the books were clean, and the bank approved it.

None of that made it a good purchase. What would have protected the buyer was underwriting the deal the way he would have to live with it, not the way the bank tests it, before the LOI was signed.

Deal sourcing is the easiest part of buying a business. Underwriting is where deals are won or lost. That is the work we do every day.

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