Glossary · Reading the business
Bad debt reserves(Allowance for doubtful accounts)
In short
This is an accounting allowance for accounts receivable that are unlikely to be collected. It reflects potential losses from customers who won't pay their bills.
What it means in a deal
When reviewing a target business's financials, analyze their bad debt reserves. A high or increasing reserve could signal issues with customer credit quality or collection practices. Understand how the seller accounts for these potential losses, as it impacts the true profitability and accounts receivable valuation.
Related terms
Common questions about Bad debt reserves
- How is prior owner debt converted to equity treated for injection purposes?
- Can I use an SBA 7(a) loan to refinance existing business debt?
- Can an SBA 7(a) loan be used to refinance existing business debt?
- Can I use an SBA 7(a) loan to pay off personal debt?
- Does the SBA require a specific debt service coverage ratio (DSCR) for approval?
- What is the debt-to-worth ratio requirement for a $0-down partner buyout?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
Pressure-test the numbers before you make an offer
Send us the asking price and the seller's cash flow — we'll show whether the deal services SBA debt and where the add-backs are likely to hold up.
Free · No documents · Usually same-day
Backed by data on 1,000+ SBA lenders and 300,000+ funded deals. Your details go only to lending partners you ask to be matched with — never sold to advertisers.