# Business Acquisition Loan Underwriting: Seller Statements

- Author: TrueBankFlow (https://www.truebankflow.com)
- Published: 2025-11-14
- Updated: 2025-11-14
- Category: Business loan and MCA underwriting
- Canonical: https://www.truebankflow.com/blog/business-acquisition-loan-underwriting

> How business acquisition loan underwriting verifies seller earnings with bank statements, adjusts for add-backs and tests the buyer's cash flow.
Business acquisition loan underwriting checks two businesses in one file: the company being sold, as the seller reports it, and the same company under the buyer. The lender verifies the seller's earnings against tax returns and bank statements, accepts only add-backs it can prove, then tests whether the adjusted cash flow covers the buyer's new debt.

## What does business acquisition loan underwriting verify about the seller?

Business acquisition loan underwriting verifies that the seller's business earns what the sale price assumes. The lender reviews the seller's tax returns, profit and loss statements, balance sheets and bank statements for the last few years, plus the purchase agreement, and checks whether the earnings used to justify the price are real and will continue under a new owner.

The buyer's own finances matter, but the seller's numbers carry the deal. A buyer paying $1.2 million for a business is paying for its future cash flow. If the seller's reported earnings are inflated, the loan is sized on money that never existed.

The seller documents a lender typically asks for:

- **Business tax returns** for three years, the strongest evidence because they were filed under penalty.
- **Interim profit and loss and balance sheet** for the current year.
- **Twelve or more months of business bank statements** to test revenue and expenses.
- **A list of add-backs** with support for each one.
- **The purchase agreement or letter of intent**, showing what is being bought and for how much.
- **Debt schedule, leases and major contracts** that will pass to the buyer or end at closing.

Sellers are not the borrower and may resist sharing documents. A seller who refuses to provide tax returns or bank statements is a serious warning. A lender cannot underwrite earnings it cannot see.

## Seller bank statements against reported earnings

Seller bank statements confirm reported earnings by showing the cash that actually moved. The lender totals revenue deposits for each year, removes transfers and loan proceeds, and compares the result with revenue on the tax return and the profit and loss. It also checks that the main expenses on the profit and loss appear as real debits.

Close agreement is a good sign. A business reporting $2,000,000 in revenue should show roughly that much in revenue deposits across its operating accounts. Small gaps come from timing, card processor fees netted from deposits and year-end receivables.

Large gaps need an explanation:

- **Deposits well above reported revenue** may mean income was underreported to tax authorities. Some sellers then claim the business earns more than its returns show. Most lenders size the loan on the returns, not on the unreported cash.
- **Deposits well below reported revenue** may mean revenue was booked that was never collected, or that another account exists that the seller did not provide.
- **Expenses missing from the statements**, such as payroll, rent or inventory purchases, may be paid from a personal account or another entity. The business then looks more profitable than it is.

Cash-heavy businesses deserve extra care. Restaurants, bars and retail shops often take cash that may or may not reach the bank. Industry-specific checks for food businesses are set out in [restaurant loan underwriting](/blog/restaurant-loan-underwriting). Trucking companies carry their own patterns of fuel, freight and factoring deposits, covered in [trucking business loan underwriting](/blog/trucking-business-loan-underwriting).

Reading several years of statements for a seller is the slowest part of the file. [TrueBankFlow](/) can line up the seller's statements month by month, sort expenses into categories and flag unusual deposits with the line behind each one, giving the analyst a deposit total to compare with the return. The verdict on the seller's numbers stays with the lender.

## Which seller add-backs survive acquisition underwriting?

Seller add-backs are expenses added back to reported profit because they will not continue under the new owner. The add-backs that survive underwriting are documented, clearly personal or one-time, and visible in the records: the seller's own salary, personal costs run through the business, interest on debt being paid off at closing and real non-recurring costs.

Add-backs turn net income into a figure the buyer can earn. Sellers and brokers present them as seller's discretionary earnings or adjusted EBITDA. Lenders accept some and reject others.

### A worked add-back review

The figures below are an example for a fictional HVAC service company with $2,400,000 in revenue. The accepted and rejected decisions are illustrations of common lender reasoning.

| Line (example) | Seller claims | Lender accepts | Reason |
| --- | --- | --- | --- |
| Net income on tax return | $180,000 | $180,000 | Filed figure |
| Depreciation and amortization | $64,000 | $64,000 | Non-cash |
| Interest on loans paid off at closing | $22,000 | $22,000 | Debt will not transfer |
| Seller's salary | $150,000 | $150,000 | Replaced by buyer's salary below |
| Seller's personal vehicle and phone | $18,000 | $12,000 | Only part documented on statements |
| Lawsuit settlement in year 2 | $40,000 | $40,000 | One-time, settlement agreement provided |
| "Owner's discretionary marketing" | $35,000 | $0 | Marketing will still be needed |
| Seller's spouse on payroll | $48,000 | $0 | Spouse runs dispatch; role must be filled |
| **Adjusted cash flow** | **$557,000** | **$468,000** | |
| Less market salary for buyer as manager | | ($110,000) | |
| **Cash available for debt service** | | **$358,000** | |

The seller's figure is $89,000 higher than what the lender accepts. That gap often reshapes the deal: a lower price, a seller note or a larger down payment.

## Buyer cash flow after the acquisition closes

Buyer cash flow after closing is the seller's adjusted earnings, less a salary for the buyer, less the new debt payments and any costs that change with the new owner. The lender asks whether that figure covers all debt service with a margin, and whether the buyer can run the business well enough to keep earnings near their history.

Continuing the HVAC example with example terms:

| Line (example) | Amount |
| --- | --- |
| Cash available for debt service | $358,000 |
| Acquisition loan, $1,500,000 over 10 years | $209,000 |
| Seller note payments, on standby for year 1 | $0 |
| Equipment loans assumed | $24,000 |
| **Total debt service** | **$233,000** |
| **Coverage** | **1.54** |

The seller note line deserves a word. A seller note is part of the price the seller agrees to collect later, in payments from the buyer. When the note is on standby, the seller receives nothing for a set period, so it does not count against coverage in that period. Once payments start, they do. In this example, a seller note costing $40,000 a year from year 2 would bring coverage down to about 1.31, still above 1.00 but with less room. The lender should test the year the note payments begin, not only the first year.

Three more tests follow:

1. **Buyer experience.** A buyer who has managed a similar business, or worked in the industry, is more likely to hold earnings steady.
2. **Transition.** Will the seller stay for a training period? Will key staff and customers stay?
3. **Liquidity after closing.** The buyer needs working capital and personal reserves after the down payment. A buyer who empties every account to close has no room for a slow first quarter.

Smaller deals sometimes fund on the business's deposits alone, with less emphasis on tax returns. The products that work that way, and their costs, are compared in [business loans based on bank statements](/blog/business-loans-based-on-bank-statements).

## Purchase price allocation and acquisition collateral

Purchase price allocation divides the sale price among the assets being bought: equipment, inventory, real estate, receivables and goodwill. It tells the lender what its collateral is actually worth, because goodwill has no value once the business fails, while equipment and real estate can be sold.

The allocation has tax effects for both sides, and the IRS requires it to be reported. Per the [IRS page on Form 8594](https://www.irs.gov/forms-pubs/about-form-8594), both the seller and the purchaser of a group of assets that makes up a trade or business must file Form 8594 when goodwill or going concern value attaches, or could attach, to the assets.

For the lender, the allocation shows the gap between the loan and hard collateral. In the HVAC example, a $2,000,000 price might break down as $300,000 of vehicles and tools, $100,000 of inventory and $1,600,000 of goodwill. A $1,500,000 loan against $400,000 of tangible assets is mostly unsecured in practice. That is why lenders lean on cash flow, personal guarantees and liens on the buyer's other assets in acquisition deals.

Lenders also compare the allocation with the purchase agreement. An allocation that puts unusually high value on equipment may be aimed at tax treatment, and the appraisal should test it.

## When seller statements contradict the sale story

Seller statements contradict the sale story when deposits are falling while the seller presents growth, when large customers named in the offering memo never appear as payers, when expenses run through another account, or when the business account shows heavy borrowing the seller did not disclose. Each one should slow the deal until explained.

Signals that reprice or stop a deal:

- **Declining recent months.** Strong prior years but the last six months of deposits trending down. Sellers often sell at the top.
- **Missing customers.** The offering memo names three major accounts, but only one appears in the deposits.
- **New lender debits.** Daily or weekly payments to funders, suggesting the business is short of cash.
- **Revenue spikes before the sale.** One unusual month inflating the trailing twelve months.
- **Related-party revenue.** Sales to a company the seller also owns, which may stop after closing.
- **Seller paying personal costs at heavy levels**, which may hide whether the business can carry a manager's salary.

Lenders that keep a record of why files were approved or declined find these patterns easier to spot over time. The mortgage industry's approach to that sort of review appears in [the mortgage quality control plan](/blog/mortgage-quality-control-plan), and the same habit of sampling closed files helps acquisition lenders check whether their add-back decisions held up.