Deal Stack: How Acquisition Financing Layers Come Together
A deal stack is the combination of all funding sources assembled to cover the purchase price of a business. Most acquisitions don't get paid with a single check — instead, several layers of financing stack on top of each other, each with different risk profiles, interest rates, repayment priority, and requirements.
Understanding how these layers interact is the core skill of deal structuring. The right stack maximizes what you can buy with the cash you have while keeping debt service manageable enough that the business can actually pay it back.
The Four Common Layers
1. Buyer Equity (Bottom of the Stack)
The buyer's own cash injected at closing. This is the first money at risk if the business fails. SBA-financed deals require a minimum of 10% equity injection. Paying more equity lowers the loan amount but protects you if earnings come in below projections.
2. Senior Debt (Largest Layer)
The primary institutional loan — typically an SBA 7(a) loan for small business acquisitions, or a conventional bank loan for larger deals. Senior debt has the first claim on business assets in default, so it carries the lowest interest rate. It's also the hardest to get approved because lenders underwrite the deal's DSCR rigorously.
3. Seller Financing (Middle Layer)
The seller carries a portion of the purchase price as a promissory note. This layer is subordinate to the SBA loan — the seller gets paid after the bank. In SBA transactions, seller notes must be on full standby for 24 months if they count toward the buyer's equity injection. Seller financing is the most flexible layer because its terms are negotiated directly between buyer and seller.
4. Earnout (Contingent Layer)
An earnout isn't always present, but when it is, it sits at the top of the stack — contingent on future performance. Because it only pays if results materialize, it has the least downside for the buyer and the most uncertainty for the seller.
Example: A $1M Deal Stack
| Layer | Amount | % of price |
|---|---|---|
| Buyer equity | $100,000 | 10% |
| SBA 7(a) loan | $700,000 | 70% |
| Seller note (standby) | $100,000 | 10% |
| Earnout (contingent) | $100,000 | 10% |
| Total | $1,000,000 | 100% |
This structure gets a buyer into a $1M business with $100K in cash. The seller gets 80% at close plus $100K seller note plus up to $100K in earnout. The key is whether the business generates enough SDE to service the SBA loan and (eventually) the seller note after standby expires.
What Makes a Stack Work
Every deal stack must pass the DSCR test: the business's post-owner-salary earnings divided by total annual debt service must be at least 1.25×. Stacking too much debt produces a ratio below 1.25× and the SBA lender won't fund it. The AcquireCalc calculator models this automatically — adjust your stack until DSCR clears the threshold.
Seller-Only Deals (No Bank)
Some deals have no institutional lender at all — the seller finances the entire purchase minus the buyer's equity. These are more common on smaller deals (under $300K) and where sellers are highly motivated. The stack is simply: buyer equity + seller note covering the rest. Higher interest rate risk for the seller, but faster close and no bank underwriting.
Related Terms
- SBA 7(a) loan — the senior debt layer in most financed acquisitions
- Seller financing — the subordinated middle layer
- Earnout — the contingent top layer
- DSCR — tests whether the stack is serviceable