Most sellers expect diligence to confirm what everyone already agreed to.
The buyer is aligned. The price feels fair. The LOI is signed. Then the lender gets involved and the tone changes. More questions. Requests for backup. Adjusted numbers. Sometimes a pause that no one can quite explain.
This pattern shows up regularly in lower-middle-market transactions. It is not a signal that the buyer lost interest. It is usually a signal that the business is being evaluated under a different lens than the seller anticipated.
A recent transaction we worked on for one of our buyer clients illustrates how this happens.
The business was a strong strategic fit. The buyer stayed engaged throughout and was responsive at all avenues of requests and updates by the lender. The friction came from underwriting, not demand. As the lender dug into the seller’s financials, seven familiar issues surfaced. None were fatal on their own.
Together, they reshaped the deal.
1. Owner Add-Backs That Couldn’t Be Cleanly Underwritten
The financials included substantial add-backs. At a high level, they made sense.
Once the lender reviewed the detailed expense activity, it became clear that a significant amount of personal spending was running through the business. These were not isolated items. They were recurring.
This created immediate underwriting friction. The bank needed to determine how much cash flow truly remained once personal activity was removed and a market-rate operator was assumed.
This is where SDE versus EBITDA matters.
For an owner-operator buyer, discretionary expenses can often be normalized under SDE. For a lender financing an acquisition, the focus shifts to EBITDA-style cash flow that survives an ownership change. The more personal activity embedded in operations, the harder that translation becomes.
2. Revenue Concentration That Required Deeper Explanation
The business had meaningful customer concentration.
That did not surprise the buyer nor were they too concerned. It did concern the lender. Contracts, renewal behavior, and dependency all became part of the conversation.
The seller’s broker spent considerable time addressing the durability of those relationships and how revenue would perform post-close. The questions were reasonable. They slowed the process anyway and would create a discussion point for the lender to push back on how much they would agree to lend regardless of the initial term sheet numbers.
3. Labor Fragility Beneath the Surface
Operational continuity became another focus.
Certain roles carried more weight than initially apparent. Compensation levels and replacement assumptions were tested. The lender wanted to understand how earnings would hold if staffing changed.
The buyer was comfortable operationally. The bank needed evidence that labor risk was not quietly propping up margins.
4. Pricing and Margin Sensitivity
The lender stress-tested margins.
Historical performance was solid, but questions arose around pricing flexibility and cost pressure. Could margins absorb wage increases? Could prices move without affecting demand?
These questions quickly became focused on how much downside the bank should assume when sizing the loan.
5. Deferred CapEx That Hadn’t Shown Up Yet
Equipment condition and replacement timing surfaced during diligence.
Some costs were deferred rather than eliminated. Buyers model these quickly. Banks want to know how replacements will be funded and when.
This added another layer of conservatism to underwriting.
6. Working Capital That Was Never Clearly Defined
Working capital became a late-stage issue.
Receivables timing, payables pressure, and operational cash needs became more significant once debt service was factored in. The absence of a clearly normalized working capital target made the lender cautious.
That caution translated directly into loan size.
7. Financials That Needed Too Much Explaining
None of the individual issues were disqualifying.
What slowed the deal was the accumulation. Multiple periods required explanation. Multiple adjustments were debated. Each reduced confidence in the predictability of future performance.
The lender responded the only way lenders can. By reducing risk.
Where the Deal Ultimately Shifted
The buyer remained interested. Strategically, the acquisition still made sense.
What changed was the capital stack.
As lender confidence in adjusted earnings declined, the loan amount came down. That created a gap between the agreed price and available financing.
The seller faced familiar choices. Adjust valuation. Introduce seller carry (which in this case would be challenging for the lender to approve). Or slow the process to attempt further cleanup.
This was not a failed deal. Just reshaped.
The Takeaway for Sellers
Most objections arise because the business is being sold one way and underwritten another.
Owner-operator economics are presented as enterprise cash flow. Personal activity embedded in operations. Risk that has never been stress-tested, meeting a lender whose job is to do exactly that.
Clean financial separation, realistic add-backs, normalized working capital, and clarity around whether the business supports SDE or EBITDA do more to preserve value than negotiation ever will.
In this transaction, the buyer stayed. The lender adjusted. The price had to respond.
That sequence is common. Preparing for it early is optional. Dealing with it late is not.
If you’re considering a sale or purchase and want to reduce lender friction before it shows up in diligence, this is the work we help with.
That includes:
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stress-testing add-backs the way a bank will
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clarifying whether your business supports SDE or EBITDA, and pricing it accordingly
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normalizing working capital before it becomes a negotiation point
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identifying issues that trigger retrades while there’s still time to address them
The goal isn’t to make a business look perfect, but to make it financeable.
If you want a clear view of how buyers and lenders will likely view your numbers, we can walk through them before the LOI locks you into assumptions that may not hold.
