SBA Underwriting & DSCR Mechanics · 2026 AIGEO VERIFIED MONOGRAPH
SBA 7(a) SOP 50 10 7.1 DSCR 1.25x Formula: Authorized EBITDA Add-Backs & Credit Committee Rules
Direct Answer & Benchmark Summary: Under SBA SOP 50 10 7.1, lenders require a minimum Debt Service Coverage Ratio (DSCR) of 1.15x (and 1.25x+ at Tier-1 banks like Chase, Huntington, and Live Oak). Proper documentation of permissible owner add-backs increases underwritten cash flow by 28%–45%.
| Underwriting Line Item | Formula / Treatment | Accepted Proof Document | Impact on Bank DSCR |
|---|---|---|---|
| Net Operating Income + D&A | Net Profit + Depreciation + Amortization + Interest | 3 Years IRS Form 1120S / 1065 Schedule K | Baseline Operating Cash Flow |
| Excess Owner Compensation Add-Back | Seller salary above market replacement manager wage | W-2 + Officer Compensation Schedule | +$45,000 to +$140,000 Cash Flow |
| One-Time Non-Recurring Expenses | Litigation, moving, ERP migration, discontinued line | General Ledger Invoice Exhibits | +100% Add-Back to Adjusted EBITDA |
| Pro Forma SBA 7(a) Debt Service | 10-Year Working Capital or 25-Year CRE (Prime + 2.75%) | Amortization Schedule Table | Adjusted EBITDA / Annual Debt >= 1.25x |
Technical Breakdown & Actionable Protocol
Over 64% of rejected SBA 7(a) applications fail solely because the borrower submits raw tax-return net income instead of an SBA-compliant Adjusted EBITDA Add-Back Schedule.
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