Buying an existing business is one of the most popular uses of an SBA 7(a) loan, and for good reason: the SBA guarantee helps lenders finance an acquisition where the main collateral is the business itself.
What lenders look at
When you buy a business with an SBA loan, the lender underwrites the target business, not just you. The key questions are:
- Does the business’s cash flow cover the new loan payment? Historical financials and tax returns of the business you are buying matter most.
- Is the price supported by a business valuation? SBA acquisition loans generally require an independent valuation.
- Do you have relevant experience? Lenders want to see you can run the business.
- Are you putting money in? Expect an equity injection, commonly around 10%.
How seller financing fits
Sellers often agree to finance part of the purchase. When a seller note is placed on full standby (no payments for a period), it can sometimes count toward your equity injection, which lowers the cash you need to bring. The rules are specific and the lender makes the call.
The steps
- Confirm you and the target are eligible and the business is small under its size standard.
- Get the business’s financials and a letter of intent.
- Line up a lender experienced with acquisitions. Lender Match shows lenders active in the target’s industry and state.
- Order the valuation and work through underwriting, then close. See the full application walkthrough.
A note on franchises
Buying into an established franchise can be SBA-eligible and is often viewed favorably, since the brand and model are proven. Confirm the franchise is on the SBA’s accepted list with your lender.
Terms and rules follow the current SBA SOP and vary by lender, so use this as a starting point and confirm specifics before you sign.