Glossary · Reading the business
Income Approach(Discounted cash flow, Capitalization of earnings)
In short
This is a business valuation method that estimates value based on the business's expected future income or cash flow. It's widely used for operating businesses.
What it means in a deal
The SBA and lenders heavily rely on the Income Approach to determine the Fair Market Value of a business, particularly through discounted cash flow or capitalization of earnings methods. This directly impacts how much the SBA will finance.
Official sources
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Income Approach
- What if the acquired business primarily generates revenue from passive rental income?
- What constitutes "passive income" disqualifying a business from 7(a) loan eligibility?
- What if my personal tax returns show inconsistent income or losses from other ventures?
- Do businesses that primarily generate passive income qualify for an SBA 7(a) loan?
- Is there an income limit for my business to be "small" by SBA rules?
- What if the business I'm buying has existing deferred revenue or unearned income?
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.
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