EBITDA Add-Backs: What Counts
In business acquisitions and commercial lending, add-backs to EBITDA can dramatically change the math. Done legitimately, add-backs reflect economic reality. Done aggressively, they invite skepticism from underwriters and buyers.
Standard Add-Backs
Universally accepted: depreciation, amortization, interest expense, taxes. These are the 'EBITDA' adjustments. Most lenders also accept owner compensation in excess of fair market value, owner perks (personal vehicles, family member salaries beyond market rate), and non-recurring one-time expenses.
Documented vs Estimated
Add-backs supported by clear documentation (a specific invoice for a one-time legal fee, a specific owner perk on a tax return) are credible. Add-backs supported by 'the owner remembered spending some money on personal items' are not.
Common Pushback
Underwriters and buyers reject add-backs that recharacterize recurring expenses as one-time. If you 'invest in marketing' every year, the marketing spend is not an add-back. If you replace your roof every twenty years, the next roof is not an add-back.
The Quality-of-Earnings Process
For larger deals, a quality-of-earnings (QoE) report by an independent accountant adds credibility. The QoE walks through proposed add-backs and validates the ones that hold up.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.