Why Asset-Backed Buyers Should Never Rely on SBA Approval Alone

If you own real estate, another business, or have substantial personal assets, you may find it easier than most to get SBA financing for a business acquisition.

But that’s exactly why you need to be more cautious—not less.

At High Point Advisory Group, we’ve seen too many well-capitalized buyers assume that because the bank approved the deal, the business must be sound. Unfortunately, banks aren’t underwriting the business. They’re underwriting you—and the more you have to lose, the more risk they’re comfortable approving.

You’re Not Being Rewarded for Finding a Great Deal—You’re Being Collateralized

The SBA loan process gives the illusion of validation. You submit the seller’s financials, provide your personal financial statement, and within a few weeks, you may have a commitment in hand. For buyers with assets—such as:

• Rental or commercial real estate
• Public market investment portfolios
• Existing cash-flowing businesses
• Retirement accounts or private equity stakes

—this approval tends to come with fewer questions and fewer restrictions. But the reason is simple:

If the business fails, the lender has other ways to get paid.

That’s good for them. But it can be very bad for you.

The More You Own, the Riskier the Approval May Be

Let’s break this down.

SBA lenders are required to secure repayment of the loan—either from the business’s cash flow or from the borrower’s assets. The more collateral and personal net worth you have, the more comfort they have approving:

• Higher loan amounts
• Lower debt service coverage ratios
• Weaker historical financials
• Shorter operating history

This isn’t theoretical—it’s built into the SBA SOPs. If the business cash flow looks weak but you own real estate outright, a bank may still proceed.

In other words, your deal didn’t get approved because the business was strong. It got approved because you are.

What the Bank Actually Reviews

To be fair, SBA lenders do review the business’s financials—usually:

• 2–3 years of tax returns
• A year-to-date P&L
• A debt service coverage analysis

But they generally don’t:

• Reconcile QuickBooks to tax returns
• Analyze customer or vendor concentration
• Review working capital trends
• Validate add-backs or normalize SDE
• Identify deferred maintenance or underpaid labor
• Assess owner dependence
• Test whether margins are sustainable

They’re looking for repayment probability—not investment quality.

For a detailed breakdown of what lenders miss (and how it can cost you), read:
What Lenders Miss: Why You Still Need Diligence Even if the Bank Approves the Loan

You’re Putting Personal Assets on the Line

If you’re pledging collateral—especially a personal residence, a rental property, a business property, a stock portfolio, or even an existing business—your downside is far more personal than most.

And with the SBA, you’re also signing a personal guarantee. That means:

• If the business underperforms, the SBA can pursue you directly.
• If you default, they’ll liquidate business assets first—and go after yours next.
• If the deal was overpriced or poorly structured, you bear 100% of the loss.

That’s why skipping financial due diligence—just because the loan was approved—is such a dangerous move.

We’ve Seen Asset-Backed Buyers Get Burned

We recently worked with a client who owned multiple rental properties and had $1M+ in net worth. He was approved for a seven-figure SBA loan to acquire a construction business. On the surface, everything checked out.

But once we ran a proper diligence review, we found:

• 20% of revenue was misclassified intercompany income
• Payroll was understated due to the owner not taking a salary
• Significant equipment repairs were deferred
• Three customers made up 75% of revenue, and two had expiring contracts

The bank hadn’t flagged a single issue. They were lending based on his credit score, his real estate portfolio, and the seller’s tax returns.

Had he proceeded, he would’ve acquired a fragile business with overstated SDE—and put his personal assets at risk to do it.

For another example of how diligence saved a buyer from overpaying on a deceptively simple deal, check out our coffee shop case study.

The Illusion of Security in SBA Loans

Here’s the catch: SBA loans are marketed as a “safe” way to buy a business.

And for buyers without assets, the SBA is relatively conservative. But once a borrower starts checking the right boxes—strong liquidity, good credit, available collateral—the approval process often gets smoother… and less careful.

This creates an illusion of deal quality that doesn’t reflect what’s really going on.

And if the deal goes sideways?

• The bank still gets paid.
• The SBA gets reimbursed.
• You’re left holding the bag.

The Role of Diligence: Protecting the Capital You’ve Built

Buyers with assets often tell us, “I don’t want to overthink this—I just want to get the deal done.”

We understand that impulse. But high-quality financial diligence isn’t about slowing things down. It’s about verifying the business is worth what you’re paying—and that it can perform well enough to justify the risks you’re taking on.

A good diligence process should help you:

• Validate SDE or EBITDA with source data
• Identify unsustainable trends or inflated financials
• Adjust working capital expectations
• Spot risky concentrations or upcoming contract cliffs
• Understand post-close cash needs, CapEx, and hiring
• Avoid overpaying—or renegotiate the terms

Not sure what that process looks like? Read:
Buy-Side Quality of Earnings Reports: What to Expect and Why You Need One

Why You’re Most at Risk When You Feel Most Secure

Here’s the irony: buyers with wealth, experience, and strong credit are the most likely to skip diligence—because they’re used to trusting their gut and moving fast.

But that’s also what makes them vulnerable. A confident buyer is often the one who:

• Doesn’t question the seller’s add-backs
• Assumes the P&L is clean
• Takes tax returns at face value
• Misses the signals that the business is owner-dependent or propped up
• Gets surprised six months after closing

You’ve worked hard to build your financial base. Don’t bet it on a business you haven’t fully verified.

The Bottom Line

If you have significant personal or business assets, you’re in a great position to acquire a company—but only if you treat the SBA approval for what it is: a credit decision, not a deal endorsement.

Don’t confuse financing access with deal quality.

The stronger your personal balance sheet, the more aggressive a bank may be willing to get. That means the burden of protection shifts to you.

A proper diligence process costs a fraction of what you’re putting at risk—and can protect years of hard-earned wealth from a bad bet.

Buying a Business with SBA Financing? We Can Help.

At High Point Advisory Group, we specialize in financial and operational diligence for business buyers—especially those using SBA or seller financing.

We help you:

• Validate SDE and EBITDA
• Analyze revenue, margin, and customer risk
• Perform a proof of cash to confirm that revenue and expenses reported in the financials are actually flowing through the business bank account
• Spot accounting issues, deferred liabilities, and working capital traps
• Negotiate smarter deal terms based on real data

And we do it fast, tactfully, and with a problem-solving mindset—so you don’t just close the deal, you close it well.

👉 Schedule a call to talk through your acquisition strategy. We’ll help you protect what you’ve built and buy with confidence.

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