SBA loan to buy a business with the 7(a) program

For most individual buyers of a US small business, the purchase is financed with an SBA 7(a) loan. The program lets a buyer acquire a profitable company with a down payment of around 10 percent of the project, spread repayment over ten years and keep enough cash flow to live on. It also shapes almost every Main Street deal: how much a buyer can pay, how a seller note is structured, what the purchase agreement must say and how long closing takes. This guide explains how an SBA loan to buy a business works from the buyer's side, with a worked debt coverage calculation. SBA rules are revised from time to time through the agency's standard operating procedures (SOP 50 10) and lenders add their own policies on top, so treat the figures here as the framework and confirm current terms with your lender before you make an offer.

How an SBA 7(a) acquisition loan works

The SBA does not lend the money itself. A bank or non-bank lender makes the loan, and the SBA guarantees a large share of it, which lets the lender finance purchases backed mostly by goodwill rather than hard assets. The 7(a) program covers loans up to 5 M USD. For a business acquisition without real estate, the term is usually ten years with fully amortizing monthly payments. When commercial real estate is a meaningful part of the purchase, that portion can run up to twenty five years. Rates are generally variable, tied to the prime rate plus a spread, and the SBA caps the maximum spread by loan size. There is also an upfront SBA guarantee fee, which varies with loan size and has changed between fiscal years, and is usually financed into the loan. Many lenders approve loans in-house under delegated authority, which speeds things up, while others submit each loan to the SBA for approval.

• Loan size up to 5 M USD under 7(a)
• Ten-year term for most acquisitions, longer with real estate
• Variable rate tied to prime, with an SBA cap on the spread
• Personal guarantee from every owner of 20 percent or more of the buyer

Equity injection and how much cash you need

For a complete change of ownership, current SBA rules require the buyer to put in equity of at least 10 percent of the total project cost, not just of the purchase price. Total project cost includes the price, working capital the lender wants funded at closing, the guarantee fee and closing costs. Many lenders ask for more than the minimum when the business is small, the buyer has no direct industry experience or the price is high relative to earnings. Equity usually has to come from cash the buyer can document, such as savings, a gift with a proper letter, or funds from investors in the buying entity. Retirement funds can be used through a rollover structure (often called ROBS), which has its own legal and tax requirements and needs specialist advice. Lenders typically want to see where the money came from for the last few months, so large unexplained deposits slow things down.

How a seller note fits into an SBA deal

A seller note is part of the price that the seller agrees to receive later, under a promissory note from the buyer. In SBA deals it plays two roles. It can fill a gap between the price and what the lender will finance, and under current rules a seller note can count toward the buyer's equity injection, but only up to half of the required injection and only when the note is on full standby (no payments of principal or interest) for the entire term of the SBA loan. A seller note that is not part of the equity can usually receive payments, subject to the lender's debt service test. These rules have changed more than once in recent years, which is why experienced brokers check the lender's current interpretation before an LOI is signed. For sellers, a note signals confidence in the business and often raises the price a buyer can pay. The trade-off is that you are subordinated to the bank and wait for your money.

Sellers should also know that SBA lenders generally do not finance earnouts in the usual form, so contingent payments are less common in SBA deals than in conventionally financed ones. When buyer and seller disagree on price, a seller note with clear terms is usually the tool that bridges the gap.

Debt service coverage ratio and a worked calculation

The central question every lender asks is whether the business can pay the loan from its own cash flow and still support the owner. The measure is the debt service coverage ratio (DSCR): cash available for debt service divided by annual loan payments. The SBA sets a minimum of 1.15, and many lenders look for 1.25 or more for acquisitions, after deducting a reasonable salary for the buyer. Consider a company with 1.8 M USD revenue and 400 000 USD of seller's discretionary earnings, priced at 1.2 M USD.

A ratio of about 1.56 leaves room for a slow quarter, so this deal is likely to pass a lender's cash flow test. If the same company were priced at 1.8 M USD, payments would rise to roughly 280 000 USD a year and coverage would fall to about 1.08, below the SBA minimum. This is why lenders, not only multiples, set the real ceiling on price. The business valuation formula article shows how SDE in this calculation is built.

Buyer and business eligibility for SBA financing

Lenders look at the buyer and the business together. The business must be a for-profit US company that meets SBA size standards, operates in an eligible industry and has earnings that support the debt. Certain businesses, such as passive real estate investment and lending businesses, are not eligible. Rules on who may own the borrowing company were tightened in 2025, so ask your lender early how they apply to your ownership structure. The lender orders an independent business valuation in most acquisitions, and the price generally cannot exceed what that valuation supports.

• Credit history, usually with a personal score well above the minimum the lender publishes
• Management experience in the industry or in running a similar operation
• Liquidity beyond the down payment, so you are not left with nothing after closing
• Collateral, including business assets and often a lien on personal real estate if the loan is not fully secured
• Seller transition, since a selling owner who stays on is usually limited to a short period, often up to twelve months as a consultant or employee

The SBA loan timeline from LOI to closing

A realistic timeline for an SBA-financed acquisition is 60 to 90 days from a signed letter of intent, sometimes longer when a franchisor or landlord must consent. Buyers who start with a lender before they make an offer move faster, because they already know their budget and their package is ready.

Delays most often come from three places: missing or inconsistent tax returns, a lease that is too short or needs landlord consent, and appraisals or environmental reports ordered late. Each can be handled in parallel if it is raised in the first week after the LOI. Sellers can help by having tax returns, interim statements and the lease ready from the day the listing goes live, which our selling a business checklist lays out document by document.

• Prequalification with a lender, often within one to two weeks, before or during your search
• Signed LOI with an exclusivity period long enough for SBA financing
• Lender underwriting, business valuation and credit approval, often three to five weeks
• Due diligence in parallel, with a quality of earnings review on larger deals
• Lease assignment, landlord consent, any franchisor approval and closing documents
• Closing, funding and the start of the transition period

Finding SBA-ready businesses for sale

An SBA-ready business has three years of tax returns that show the earnings on the listing, a lease that runs long enough, and a price the cash flow supports. When you search listings, look at the asking multiple and test it with the DSCR math above before you request financials. On CompanyBrokers, each listing shows revenue, SDE, asking price, multiple and reason for sale, and every inquiry includes the NDA and a proof of funds step, where a lender prequalification letter helps you stand out to sellers. Our guide to buy a business covers the search itself, and you can browse each business for sale near me by state and industry.