LBO (Leveraged Buyout)

The purchase of a business funded mostly with debt secured by the business itself, so a modest equity check controls a much larger asset.

Nearly every SBA acquisition is a small leveraged buyout; the leverage that lifts the return on your equity also raises the risk, which is why the lender underwrites whether the cash flow can carry the debt before it funds the deal.

In numbers: Buy for $1,000,000 with $100,000 of equity and $900,000 of debt: a 10% check controls the whole asset. Sell later for $1,500,000 with the debt paid down to $600,000 and the $100,000 has become $900,000, the same leverage that would have wiped it out if the price had fallen.