Use this guide to evaluate whether working capital (WC) has been properly addressed in a business valuation and underwriting for SBA lending purposes.

Step 1: Identify WC Components

• Accounts Receivable (AR)
• Inventory
• Accounts Payable (AP)
• Accrued expenses

Step 2: Evaluate Treatment in Valuation

• Is WC included in the purchase price or treated as a separate asset?
• Does the valuation account for net working capital (AR + Inventory – AP)?
• Was a WC target defined in the LOI or APA?
• Is WC needed to operate the business post-sale?

Step 3: SBA Risk Questions

• Will the buyer receive sufficient WC to continue operations?
• Will they need to inject additional capital to fund receivables or inventory?
• Does the valuation assume WC will be delivered, but APA contradicts that?

Red Flags

• Zero WC shown or transferred in a deal with inventory or AR.
• Valuation uses income approach but ignores WC funding.
• APA says seller keeps AR/inventory but cash flow assumes WC continues.

Underwriting Tip

WC issues are one of the most common post-close stress points. Adjust deal structure accordingly to ensure adequate WC post-close.