First, Why does this matter?

When you’re negotiating an LOI with a business seller, you’re going to face a choice about working capital that will have serious implications later, when it’s time to structure your SBA loan.

If the seller is unwilling to include a normalized level of working capital in the purchase price, you may be forced to write the LOI without it. Think of it like buying a car without the wheels included. The wheels, in this case, are the permanent working capital the business needs to run. Leave them out of the price, and you’ll have to fund that part of the effective price of the business from debt. And most buyers think that will be easy.

That’s where it gets sticky.

Bank credit approvers can be very unwise with working capital when they view it as “giving the borrower their equity back” rather than financing the wheels on the car. Across the hundreds of acquisition deals the Viso Method has guided, the pattern is consistent: most credit approvers still don’t understand this dynamic. They feel put out by the working capital part of the loan request, and they actively try to eliminate or reduce it throughout the bank credit approval and funding process. In doing so, they unknowingly set their own loan, and their own borrower, up for dramatically increased risk that comes with not having sufficient working capital post-close.  In fact, many of the worst “horror stories” around business buying are a direct result of closing the deal with insufficient working capital, so it’s a big deal to get this right for the buyer and their bank. But it’s complex and there are many potential points of failure to getting the working capital right throughout the SBA loan process, resulting in it not getting done right far too often.

Look at the two scenarios below, the math is virtually identical. The buyer’s equity is the same. The total project is the same. Yet one of these deals sails through credit, and the other invites pushback on the exact dollars the business needs to survive its first year.

Figure 1: Same buyer, same equity, virtually the same math. One structure invites pushback on the dollars the business needs most. The other doesn’t.

Structuring working capital for acquisitions is a core part of the Viso Method, and both of these structures can be approved by banks when they’re set up correctly. But getting the bank to fund the necessary working capital is always harder. And here’s the part buyers miss: when the working capital sits inside the loan instead of the price, the bank controls the final amount that gets funded. They can cut it late in the deal, after you’ve burned months of exclusivity. That’s risk you don’t control.

So, the safer structure is clear: get a normalized level of working capital included in the purchase price whenever you can.

Which raises the obvious question. If that’s the safer structure, why do so many deal advisors tell their clients to do the opposite? There’s more than one answer to that question of course, but at least part of the problem lies in a common misconception that working capital “true-ups” are not allowed with SBA loans.

How a Bad Practice Was Born

Here’s what happened, and we’ve watched it play out on deal after deal.

A buyer and seller agree in good faith at the LOI stage that the business will be delivered with a normalized level of working capital. That concept includes a true-up, because the true-up is what makes it fair to both sides. Everyone shakes hands. The deal moves through diligence, the purchase agreement gets drafted, the closing date gets set. And then, in the final stretch, the bank’s SBA counsel reads the true-up language for the first time and throws it out.

Now the business broker has a problem. The seller agreed to the working capital concept in good faith, true-up and all, and is suddenly being told the fairness mechanism is gone but the obligation to deliver working capital stays. Trust evaporates at the worst possible moment. Sometimes the deal wobbles. Sometimes it dies.

Go through that experience a few times and you can understand what many business brokers started doing: advising their clients to never agree to include working capital in the price at all. The widespread belief that “SBA loans don’t allow true-ups” wasn’t invented out of thin air. It was born at real closing tables, from real eleventh-hour rejections.

And that bad practice pushes buyers into exactly the riskier structure we just covered: working capital left out of the price, funded (maybe) by the loan, at the bank’s discretion.

The rest of this article is the fix. How a true-up actually works, how the bank’s lawyer evaluates one, and how to draft it so it never gets thrown out.

The Misconception, An Example

• Your purchase agreement says the business comes with $250,000 of working capital.
• The post-close reconciliation shows the seller actually delivered $350,000. A large receivable was collected right before closing.
• Without a true-up, you just received an extra $100,000 of value. Sounds great when you’re the buyer, until you realize it cuts both ways. If the seller had delivered $150,000 instead, you would be the one eating a $100,000 hole with no remedy.

This is why sellers insist on the true-up, and why they’re right to. Now, here’s where the SBA concern comes in. Some bank counsel will object when the true-up is drafted as a post-closing purchase price adjustment, because a price that moves after closing can raise questions about whether the buyer’s minimum equity injection was actually met. That’s a legitimate concern. But it’s an argument for drafting carefully, not for deleting the true-up, and certainly not for deleting working capital from the price.

How the True-Up Actually Works: A Simple Example

Back to our car. If working capital is the wheels, the true-up is just the inspection that confirms you got the wheels you paid for. Or, the way the Viso Method frames it for sellers: the business is promised to come with a full tank of gas. The “full tank” is the cash, receivables, and inventory that let the business run on day one. The peg is simply the number both sides agree counts as “full.”

Here’s the whole lifecycle, with real numbers:

• Sign. The purchase agreement sets a working capital peg of $250,000, usually based on the trailing twelve-month average the business needs to operate normally.
• Close. Nobody knows the exact number on closing day. Customers are paying invoices, vendors are getting paid, inventory is moving. The seller delivers an estimate and everyone closes on it.
• Measure (day 60 to 90). Once the dust settles, the buyer counts what was actually delivered in real, collected dollars. Say it’s $350,000, because a big receivable landed right before close.
• True up. The buyer got $100,000 more “gas” than the deal priced in. With a properly drafted true-up, that $100,000 flows back to the seller, but only after the $250,000 target has been collected in cash, and never in a way that touches the buyer’s SBA equity.
• Or the reverse. If only $200,000 showed up, the seller pays the buyer $50,000, or an escrow holdback covers it. Either way, both sides get exactly the deal they signed. Nothing more, nothing less.

The key insight: a true-up isn’t a price renegotiation. It’s a measuring stick that makes sure the “full tank” you paid for is the tank you actually received.

Where the Peg Comes From, and Why Closing Day Is Never Exact

Two things make the true-up unavoidable rather than optional.

First, the peg isn’t arbitrary. Normalized working capital should be sized to cover the cost of running the business across one full cash conversion cycle, meaning every day between paying suppliers and collecting from customers. If the business holds inventory for 45 days and waits another 30 days on receivables, that’s 75 days of operating costs the buyer has to fund before cash comes back. At roughly $3,333 of daily operating cost, that’s how you arrive at a $250,000 peg. A longer cycle, or higher operating costs, means more normalized working capital in dollars. Buyers and their Quality of Earnings professionals spend a lot of time and money to get the diligence right on this topic to ensure the buyer won’t be for cash once they start operating the business post-close.
Second, no business can deliver the peg exactly (unless it’s all cash, which is unlikely).

Once the peg is set, most of the working capital that satisfies it lives in non-cash assets. Accounts receivable and inventory move every single day and never land on a round number. The closing balance sheet won’t show $250,000.00. It will show something like $128,640 of cash, $146,083 of receivables, and $152,919 of inventory, less $77,694 of payables. That’s $349,948 of actual working capital against a $250,000 peg, and that $99,948 difference is exactly what the true-up exists to settle. The diagram below walks the whole chain:

How the Bank’s Lawyer Will Read Your True-Up

This is the part most articles skip, and it’s the part that decides whether your true-up survives or gets tossed in the final stretch like all those deals that created the myth in the first place. When your purchase agreement hits the lender’s desk, the bank’s SBA counsel is the person charged with approving or rejecting your true-up language. Knowing how they think is half the battle.

Labels don’t decide anything. Substance does. Calling excess working capital an “excluded asset” is the right starting point, but the label alone doesn’t make the structure work. Counsel is going to evaluate the substance of the deal: how the money actually flows, who holds it, when it moves, and what triggers each payment. If the documents say one thing and the dollars do another, expect a flag.

The equity injection is the test. Here’s the single question counsel applies to any true-up: could this structure, under any scenario, reduce the buyer’s actual cash at risk below the required equity injection? If the answer is even “maybe,” it’s getting a careful review. Your job is to draft so the answer is structurally “no.”

Get it in front of the bank early. Remember how the myth was born: true-up language surfacing in front of bank counsel for the first time at closing. Don’t let that be your deal. Share the working capital amount, mix and true-up mechanism with your lender when your loan is in underwriting and ask them to explicitly mention approval of not just the working capital but the concept of the true-up in their final commitment letter. The loan closer and closing counsel will then already have guidance from the credit approvers at the bank on not just the amount and mix of working capital assets that are to be included in the price, but also the mechanics of the true-up after close.

The Two Drafting Solutions

When bank counsel push back, the fix is structural, not surgical removal:

• Excluded-asset mechanism. Avoid any purchase price adjustment entirely. Deem excess working capital an excluded asset that passes back to the seller after the true-up, and only after the target working capital has been collected in cash. The price never moves, so the equity injection is never in question. Just remember the point above: the money flow in your documents has to match the label, because that’s what counsel will actually check.
• Capped payment. Cap any payment back to the seller so the buyer’s equity can never fall below SBA minimum requirements, no matter what the reconciliation shows. This is the belt-and-suspenders answer to the equity injection test.

The Takeaway?