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Rate increase from 6% (2021 purchase) to 9.75% raises monthly payment from…

2026-08-02 · 22:39 UTC ·@CoFoundersNik ·1 min read

Brief

A $5M Home Health & Hospice acquisition (assumed 10% down, $4.5M SBA 7(a), 10‑year amortization) shows a rise from 6% to 9.75% reduces post-debt cash flow from $400,489 to $294,594 — a $106k/year hit. To restore prior cash flow buyers must cut price to ~ $4.25M, add ~$675k equity, secure a $675k seller standby note, or boost EBITDA to ~ $1.106M.

Why it matters

Rate increase from 6% (2021 purchase) to 9.75% raises monthly payment from $49,959 to $58,784 and annual debt service from $599,511 to $705,406 on a $5M deal with $1M EBITDA, cutting post-debt cash flow from $400,489 to $294,594 — $106,000/year less.

Key details

  • Typical deal assumptions: $5M price, $1M EBITDA, 10% down ($500k), $4.5M SBA 7(a) loan, 10-year term/amortization, Prime+2.5–3.0. To regain the lost ~$106k buyers can (a) reduce price to ~$4.25M (4.25x EBITDA; seller loses ~$675k; loan ≈$3.825M), (b) add ≈$675k equity (~$1.175M total), (c) get a ~$675k seller note on full standby (treated as equity), or (d) increase EBITDA to ≈$1.106M (which alters the multiple).
  • Higher rates are changing deal economics: sellers remain at 2022 asset price expectations while buyers face elevated rates, so structuring (price, equity, seller carry, or EBITDA targets) determines who absorbs the rate pain.
Source evidence

What do higher rates actually mean for business buyers?

It’s brutal.

Look at this $5M Home Health & Hospice deal ($1M EBITDA).

Assume the standard structure:
- 10% down ($500k)
- $4.5M SBA 7(a) loan
- Term/Amortization 10 years
- Typical Prime + 2.5-3.0

In 2021 (when I bought) at 6%:
• Payment: $49,959/mo
• Annual debt service: $599,511
• Post debt cash flow: $400,489

Today at 9.75%:
• Payment: $58,784/mo
• Annual debt service: $705,406
• Post debt cash flow: $294,594

Same business + Same price + Same equity + Different rate = $106k/yr LESS

To get back to that same ~$400k cash flow today, buyers have 4 real options:

  1. Price reduction
    Negotiate the deal down to ~$4.25M (4.25x EBITDA instead of 5.0x). Seller absorbs the rate pain.

The new loan amount is $3.825M & $675k less for the seller.

  1. More equity
    Keep the $5M price BUT buyer puts $675k MORE down (~$1.175M total). Buyer absorbs it with a much bigger check.

  2. Seller note on full standby
    Keep price and equity the same BUT seller carries ~$675k on full standby (no payments during the SBA term of 10 years).

Bank treats it as an equity injection and your cash flow is protected.

  1. Higher EBITDA required
    If price and down payment stay fixed, the business needs to generate ~$1.106M in EBITDA just to deliver the SAME $400k cash flow.

Problem is that the multiple then changes.

Higher rates are changing the entire structure of what a “good deal” looks like.

Unless you want to absorb all the downside of higher rates, you’ve got to understand how to structure your deal to your advantage.

Sellers are still stuck at 2022 asset prices. You’re stuck with 2026 rates!