Business acquisition capital stack calculator
How the whole purchase gets funded, and whether the cash flow covers it. Sources against uses, with the senior loan solved as whatever the other sources do not cover.
The calculator
Sources and uses
| Uses | Amount | Sources | Amount |
|---|---|---|---|
| Purchase price | $4,500,000 | Senior debt | $3,500,000 |
| Working capital | $250,000 | Seller note | $600,000 |
| Closing costs | $100,000 | Buyer equity | $750,000 |
| Debt retired | $0 | Other equity | $0 |
| Total uses | $4,850,000 | Total sources | $4,850,000 |
Surplus with no use assigned: $0
Sources balance uses exactly. That is arithmetic, not a statement that the structure is fundable.
Debt service and coverage
- First 12 months of service
- $676,934
- First-year coverage
- 1.03×
- Lowest full-year coverage (year 1)
- 1.03×
- Lump sums due at maturity
- $0
- Against your target
- —
Coverage above excludes lump sums due at maturity. Those are shown separately, because covering them means refinancing or selling, which is not something a coverage ratio measures.
If cash flow comes in lower
| Scenario | Cash flow | Coverage |
|---|---|---|
| As entered | $700,000 | 1.03× |
| Down 10% | $630,000 | 0.93× |
| Down 20% | $560,000 | 0.83× |
Debt service is held constant. These are stress tests on the target's earnings, not forecasts and not a variable-rate projection.
- The senior loan and the seller note here are proposed, not committed. Nobody has agreed to lend or carry them at these terms.
- Working capital here is funded on top of the purchase price. If the price already includes it, entering it again overstates what has to be funded.
Have the structure reviewed
Duneland can review this capital stack and identify the lenders that fund structures like it. The arithmetic above is free and complete. What it cannot tell you is which lender says yes, and on what terms.
Continue analyzing this deal
A worked example
A $4,500,000 business, with $250,000 of working capital and $100,000 of closing costs. Total uses are $4,850,000 — not the purchase price, which is the first thing a buyer gets wrong.
The buyer brings $750,000 and the seller carries $600,000. That leaves a senior loan of $3,500,000, which is 72.2% of total uses.
First-year debt service is $676,934 against $700,000 of cash flow, so coverage is 1.03×.
Now put the seller note on a 24-month standby. First-year service falls to $537,737 and first-year coverage rises to 1.30× — which looks like an improvement and is not. Once the note starts paying, the worst full year covers at only 1.03×, in year 3. That is the number a lender underwrites.
How the stack is calculated
Total uses = purchase price + working capital + closing costs + debt retired
Senior loan = total uses − buyer equity − other equity − seller note
In solve-for-the-gap mode the senior loan is that remainder. If the remainder is negative, the senior loan is zero and the surplus is named as overfunding: there is no such thing as negative debt, and quietly raising the equity to absorb it would rewrite what you entered.
Coverage = annual cash flow ÷ annual debt service
Debt service comes from the actual schedules of both tranches, measured over each twelve-month window from funding rather than as one annual figure. That is what makes the worst year visible. Lump sums due at maturity are reported separately and excluded from the ratio, because covering a balloon means refinancing or selling, and a coverage ratio does not measure either.
Two double-counts are easy to make and the calculator warns about both. Debt retired at close is a use of funds, and its payments stop, so it must not also appear in retained debt service. Working capital already inside the purchase price must not be entered again on top of it.
What this does not tell you
The senior loan and the seller note in any structure here are proposed. Nobody has agreed to lend or carry them at these terms. Balanced sources and uses is arithmetic, and a coverage ratio above your target is your own test met, not an approval.
Cash-flow capacity is also only one of the constraints a lender applies. Collateral, the buyer's experience and credit, industry concentration, and the lender's own appetite all sit outside this model.
Illustrative results for planning. Not a financing commitment, financial advice or legal advice.
Duneland Financial is an independent capital advisory firm and does not directly extend credit. Financing is provided by third-party lenders and capital providers and remains subject to their individual underwriting, approval and documentation requirements. Information provided on this website is for informational purposes only and does not constitute a financing commitment, financial advice or legal advice.
Related reading
How lenders read a structure like the one above.
- SBA Loan vs. Conventional Loan: Breaking It Down with a $5 Million ExampleSBA against conventional financing on a $5 million acquisition: the rates, the interest each route costs over ten years, and which one suits which buyer.
- Proof of Funds for Buying a Business: What Actually Impresses Sellers and LendersWhat sellers, brokers and lenders actually accept as proof of funds when you buy a business, and why a bank statement alone rarely does it.
- 10 Ways Sellers Can Make a Business Easier to FinanceTen things a seller can do to make a business financeable, so a buyer's lender approves the deal rather than declining it.
Capital stack: common questions
Why is the purchase price not the amount that has to be financed?
Because a purchase price is one use of funds among several. Working capital funded at close, closing costs, and any debt of the target retired at close all have to be paid for too. A buyer who arranges financing against the price alone is short on day one by whatever those items come to. Total uses is the number the capital stack has to cover.
What is a funding gap?
It is total uses less total sources. A positive gap means part of the deal is unfunded. A negative gap means the sources entered exceed what the deal needs, which usually means a figure has been double-counted. The calculator can solve the senior loan to close the gap exactly, or take the senior loan as you enter it and show you the difference.
Does a seller note count as the buyer’s equity injection?
No. A seller note is debt. It ranks behind the senior lender and it may sit on standby taking no payments, but it is not the buyer’s cash and it is not automatically treated as a qualifying equity injection. Some lenders give a standby seller note partial equity credit on their own terms. That is a question for the lender, not an assumption this calculator makes.
My sources and uses balance. Does that mean the deal is financeable?
No. Balanced sources and uses is arithmetic: the money in equals the money out. Whether a lender will provide the senior loan at those terms depends on the target’s cash flow, the buyer’s experience and credit, the collateral, the industry, and the lender’s own appetite. The senior loan in any model here is proposed. Nobody has agreed to lend it.
Which coverage ratio should I look at, the first year or the worst year?
The worst full year. A structure with a deferred seller note produces a flattering first year, because the note takes no cash while it is on standby, and then a materially worse year once it starts paying. A lender underwrites the worst year, so the calculator shows both and names the year the lowest figure falls in.
Why is the balloon payment excluded from the coverage ratio?
Because a coverage ratio measures whether ongoing cash flow covers ongoing payments, and a balloon is neither. Covering a lump sum at maturity means refinancing the balance, selling the business, or having the cash on hand. The calculator reports maturity obligations as their own figure rather than blending them into a ratio that would then describe nothing accurately.
Have a deal in front of you?
Whether you have a signed LOI, are preparing an offer or are still evaluating the opportunity, send us the basic numbers and where you are in the process. We’ll look at the business, buyer and proposed structure and determine what the financing path may look like.