BDC & Other Lenders Tightening Lending: Why Businesses Are Now Selling at 2–3x EBITDA
- bcrompton
- 10 hours ago
- 2 min read
Over the past several months, we’ve seen a significant shift in how deals are being financed — and it’s directly impacting business valuations across the market.
Traditionally, many small and mid-sized businesses were marketed and sold using multiples of Seller’s Discretionary Earnings (SDE), often in the range of 3x–4x SDE, depending on the industry and deal structure.
Today, that reality is changing.
What’s Changed at BDC
BDC (Business Development Bank of Canada), one of the primary lenders in the lower middle market, has recently tightened its underwriting standards.
In practical terms:
· Deals are now being evaluated closer to 2x–3x EBITDA
· Greater scrutiny is being placed on add-backs and adjustments
· There is less flexibility in stretching valuations through financing
This shift is largely driven by higher default rates and a more cautious lending environment.
Why This Matters for Business Owners
If you’re thinking about selling your business, this has a direct impact on what your business is worth in today’s market.
There are now two realities:
1. What a buyer may be willing to offer
2. What a lender is actually willing to finance
The gap between these two numbers is where deals are now breaking down.
A business that may have previously traded at 3.5x–4x SDE may now struggle to secure financing at those levels, even if the fundamentals are strong.
The Shift from SDE to EBITDA
Historically, SDE allowed for:
· Owner salary add-backs
· Discretionary expenses
· More flexibility in presenting earnings
Today, lenders are moving toward:
· Cleaner EBITDA-based analysis
· Reduced reliance on subjective add-backs
· Greater emphasis on verifiable, recurring cash flow
What This Means for Deal Structuring
In this environment, getting a deal done requires more than just finding a buyer.
It requires:
· Pricing the business in line with financeable value
· Structuring deals with lender expectations in mind
· In some cases, incorporating:
o Vendor take-backs
o Earnouts
o Flexible terms
The days of simply listing a business at a market multiple and expecting it to close are gone — at least for now.
The Opportunity (For the Right Sellers)
While this shift may seem negative, there is also opportunity.
Sellers who:
· Understand financing constraints
· Price strategically
· Work with buyers to structure deals
Are still successfully closing transactions — often with stronger, more committed buyers.
Final Thought
The biggest mistake business owners can make right now is relying on outdated valuation expectations.
The market hasn’t disappeared — it has adjusted.
Understanding how lenders like BDC are currently underwriting deals is now one of the most important factors in successfully selling a business.
Thinking of Selling Your Business?
If you’re considering a sale in the next 6–12 months, understanding what your business is actually financeable for is critical.
👉 Find Out What Your Business Is Actually Worth Today:
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