Glossary · Updated Oct 18, 2026

Search Fund & ETA Glossary: Deal Terms in Plain English

20 terms you'll meet in a CIM, an LOI and an SBA loan application, each in one or two sentences. Jump to a term or read top to bottom.

Add-backs: Expenses added back to earnings because a new owner wouldn't have them, such as the seller's personal car, one-time legal costs or above-market owner pay. Each one should be documented; lenders discount add-backs they can't verify.
Adjusted EBITDA: Earnings before interest, taxes, depreciation and amortization, plus documented add-backs. The main measure of what a business earns for a buyer, and the number price multiples are applied to.
CIM (Confidential Information Memorandum): The broker's marketing document for a business for sale: history, customers, operations and a financial summary. It is prepared for the seller, so its numbers should be checked against the tax returns.
DSCR (Debt Service Coverage Ratio): Cash flow available for debt divided by annual loan payments. The SBA 7(a) minimum for a first-time acquisition is 1.25x under SOP 50 10 8.1, tested on historical cash flow. Try the SBA DSCR calculator.
Earnout: Part of the purchase price paid later, only if the business hits agreed targets. Useful when buyer and seller disagree on what the business will earn.
Equity injection: The cash the buyer puts into an SBA-financed acquisition, commonly 10% of the project cost. Whether a seller note can count toward it depends on the current SBA rules and the lender.
ETA (Entrepreneurship Through Acquisition): Becoming a business owner by buying an existing company instead of starting one. Search funds and self-funded searches are the two main routes.
Form 1120-S: The federal income tax return for an S corporation. Page 1 shows revenue, cost of goods sold, deductions and ordinary business income; it is the main source for checking a CIM.
Form 1125-A: The cost of goods sold schedule attached to a business tax return. It shows what makes up COGS, including inventory, purchases and labor.
LOI (Letter of Intent): A mostly non-binding offer that sets price, structure and exclusivity before due diligence. Mistakes in the numbers are cheapest to fix before it's signed.
Multiple: Purchase price divided by adjusted EBITDA (or SDE). A $6M price on $1.5M of adjusted EBITDA is a 4.0x multiple.
Net working capital (NWC) peg: The level of working capital (receivables plus inventory minus payables and similar items) the seller agrees to leave in the business at closing, usually based on a trailing average. If the actual figure is lower, the price is adjusted down.
QoE (Quality of Earnings report): An accounting firm's review of a business's earnings, usually done after the LOI and before closing. Deeper and more expensive than a pre-LOI reconciliation.
SBA 7(a) loan: The US Small Business Administration's main guaranteed loan program, widely used to buy small businesses. The maximum loan is $5 million; acquisitions without real estate are usually amortized over 10 years.
Schedule L: The balance sheet section of a business tax return, showing assets, liabilities and equity at the start and end of the year. The source for working capital analysis.
SDE (Seller's Discretionary Earnings): Earnings plus the owner's entire salary and benefits, plus add-backs. Common for smaller businesses; larger deals and lenders usually use adjusted EBITDA with a market salary deducted.
Search fund: A vehicle where investors back a searcher to find and buy one business, then the searcher runs it. A self-funded searcher pays their own search costs and raises equity once a deal is found.
Seller note: Part of the price the seller lends to the buyer, repaid over time. On full standby it receives no payments while the SBA loan is outstanding.
Sources and uses: A table showing where the money for a deal comes from (SBA loan, equity, seller note) and where it goes (purchase price, working capital, fees). Both sides must match.
TTM (Trailing Twelve Months): Results for the most recent 12 months, regardless of fiscal year. CIMs often use TTM figures, which have no matching tax return.