In my experience these are generally just cursory glances by banks at the industry and the financials to say that it is something they would consider. They don't look at any adjustments, growth potential, challenges with the deal, DSCR or valuations. They just plug in the standard 80% SBA, 10% Seller, 10% Equity equation and show what the monthly payments would be. It isn't much different than if you become a "pre qualified buyer", it is all just marketing. It's mostly a way for lenders to get leads on buyers since they will likely reach out to them first.

Great question. The minimum required down payment for SBA 7A loans is 10% and you can get away with even less down based on the updated SBA rules if the seller is carrying back a note for 10% or more of the business price on full standby (meaning no payments for two years) or interest only for two years. However, I think the biggest challenge with the general pre-approvals for deals is that it is unclear what information the lender was provided and how closely they looked at that information before providing the pre-approval letter.

I saw one deal recently with three different lender pre-approval letters. Every one had a different loan amount and slightly different interest rates. When I calculated how much debt the business could support, it was lower than the lowest of the three pre-approval letters. So it did not appear all of the financial information had been fully reviewed.

If you have questions or need help understanding what type of debt is available on a business, please do not hesitate to reach out to me here or at redacted