A business acquisition loan is financing you use to buy an existing business. For many small business purchases, that loan is an SBA 7(a) loan for a change of ownership, made by a private lender and partly guaranteed by the Small Business Administration. The price is usually paid in layers, with your own cash, the loan, and often a note the seller agrees to carry. Under SBA rules, a buyer acquiring a business outright puts in at least 10% of the total project cost, a seller note on full standby can cover up to half of that, and the business's own cash flow has to cover every new payment with room to spare. Expect the process to take weeks to a few months.
How business acquisition financing usually works
Unless you can pay cash for the whole business, you'll build what lenders call a capital stack, where each source of money covers a slice of the price and is repaid in its own way.
- An SBA 7(a) loan is the usual base for a small acquisition. The SBA's 7(a) program page lists changes of ownership, complete or partial, among the uses of the loan and sets the maximum at $5 million.
- A conventional bank loan follows the bank's own credit policy without the SBA guarantee, so the down payment, term and collateral are whatever that bank requires, and it can close faster when the file is strong.
- Seller financing means the seller accepts part of the price as a promissory note paid over time, which keeps the seller invested in a smooth handover.
- Buyer equity is the cash you bring from savings, a gift or another eligible source, and every lender wants to see it because it means you share the risk.
- An earnout ties part of the price to how the business performs after closing. Earnouts show up in privately financed deals, but the SBA does not allow seller earnouts on a 7(a) acquisition (it does allow buyer rebates tied to performance).
Here is how those layers might fit, using example numbers only. Say the total project cost is $1,000,000, meaning the purchase price plus closing costs and some starting working capital. The buyer puts in $50,000 of cash, the seller carries a $50,000 note on full standby, and an SBA 7(a) loan covers the remaining $900,000. At an example rate of 10% over ten years, the loan payment is about $11,894 a month, or roughly $142,700 a year. If the business earns $220,000 a year before interest, taxes, depreciation and amortization, it covers that payment about 1.54 times.
What the SBA requires on a loan to buy a business
The SBA sets its lending rules in a standard operating procedure called SOP 50 10. A rewrite (SOP 50 10 8) took effect June 1, 2025, and SOP 50 10 8.1 with technical updates took effect October 1, 2026. Its Appendix 15 covers changes of ownership. A new owner buying a business is an initial acquisition, the default category, and the rules below apply to it unless noted.
Equity injection, the buyer's down payment
For an initial acquisition, the minimum equity injection is 10% of the total project cost, which the SOP defines as all costs required to become operational, whatever the source of funds, and the lender cannot reduce it. When an existing business buys another or current owners buy each other out, the minimum is also 10%, but the lender may lower or waive it if the business has enough liquidity to carry on after the sale. Your own cash that isn't borrowed counts in full, as do gifts, grants with no repayment strings, and a personal loan to a guarantor that will be repaid from something other than the business's cash flow. Money borrowed against the business you're buying doesn't count, so the down payment has to come from outside the deal. If you pay for the valuation or other required due diligence yourself, that spending counts toward the injection.
How a seller note can count toward the 10%
A seller note counts as equity only if it's subordinated to the lender and on full standby, meaning no payments of principal or interest for the entire term of the 7(a) loan. Standby debt and the other limited sources can provide no more than half of the required injection, so on a 10% requirement the seller note can cover up to 5% of the total project cost and you supply the rest. A seller can also carry a regular note paid alongside the bank loan, but then it counts as debt, and the SOP caps total debt supporting the purchase, seller debt included, at the business valuation. In an initial acquisition the seller generally can't stay on as an owner or employee, though the business can hire the seller as a consultant for up to 24 months.
Personal guarantees and collateral
Anyone who owns 20% or more of the borrower, directly or indirectly, must sign an unlimited full personal guarantee, and on an acquisition those percentages are measured after the sale. Each of those owners also completes a personal financial statement on SBA Form 413. The lender takes a security interest in the assets conveyed in the purchase, including transferable licenses, usually recorded as a UCC lien on the business's assets. Our guide to business loans without a personal guarantee covers the products that can work that way, but an SBA acquisition loan isn't one of them.
Loan size, term and rate
A standard 7(a) loan goes up to $5 million. A loan that funds a change of ownership must amortize over no more than ten years, with no balloon payment. Owner-occupied real estate bought with the business can run up to 25 years, either as a separate loan (an SBA 504 loan is one option for the building) or blended into one loan on a weighted average term. Rates are negotiated with the lender under SBA maximums, and on a variable rate loan above $350,000 the rate can't exceed the base rate plus 3 percentage points. The SBA notes that most 7(a) term loans are repaid in monthly installments of principal and interest from the cash flow of the business.
Buying out a partner
A 7(a) loan can also fund a partial change of ownership, such as buying out one of two partners. At least one original owner has to stay and guarantee the loan, and every new owner becomes a co-borrower, even at 1%.
What business acquisition lenders look at
The SOP says the lender has to show the buyer can run the business and repay the loan from its cash flow. Most of the file is about the business you're buying, and the rest is about you.
- The lender analyzes the business's three most recent year-end financial statements, using the most thorough level available (audited, reviewed, CPA-compiled or tax returns), plus the latest interim statement, and checks the seller's figures against IRS tax transcripts.
- An independent valuation by an accredited appraiser, prepared for the lender, has to support the price. If the price is $350,000 or less, the lender may value the business itself unless the buyer and seller are closely related, and any amount you pay above the valuation has to come from equity.
- A purchase priced at $3 million or more also needs a quality of earnings report, which rebuilds the seller's cash receipts from bank statements and tests every add-back.
- The lender reviews the purchase agreement with all its schedules and amendments, the terms of any seller note, and makes a site visit to the business being acquired.
- The debt service coverage ratio must reach at least 1.25 for an initial acquisition, measured as earnings before interest, taxes, depreciation and amortization divided by all debt payments after the sale. Your projections are reviewed, but the ratio has to be met on historical results.
- Your industry experience and plan for day-to-day management go into the lender's credit memo, alongside your personal credit and a global cash flow that has to cover everything you owe.
The SBA's guide to buying an existing business or franchise suggests bringing in an attorney and an accountant to review the letter of intent, leases, financial statements, tax returns and sales agreement. For the wider list of what banks and SBA lenders ask for, see our guide to small business loan requirements.
How long a business acquisition loan takes
SBA and bank loans take weeks. From a complete file, a standard SBA loan commonly funds in four to eight weeks, and acquisitions often run longer because more pieces have to come together. The valuation has to be written, the seller's numbers verified against transcripts, the site visit done, and the landlord, franchisor or licensing agency may need to approve the transfer. Deals close fastest when the seller hands over clean financials early and the purchase agreement is settled before underwriting starts.
The full cost of a business acquisition loan
For SBA and bank loans, cost is mostly interest. With example numbers again, a $900,000 loan at 10% over ten years costs roughly $527,000 in interest if it runs to term.
The SBA also charges an upfront guaranty fee on the guaranteed portion, set each fiscal year. Under its fiscal year 2027 fee notice, the fee is 2% of the guaranteed portion on loans of $150,000 or less, 3% on loans up to $700,000, and on larger loans 3.5% of the guaranteed portion up to $1 million plus 3.75% above that. On the example $900,000 loan, the SBA guarantees 75%, or $675,000, so the fee comes to about $23,625. Add the valuation, any quality of earnings report, legal and accounting review, and closing costs, all of which are part of the total project cost. A conventional bank loan carries no guaranty fee, but the bank sets its own rate, term and down payment, and some banks ask for more cash or collateral on a purchase that is mostly goodwill. Our page on SBA and bank loans lays out the programs we place.
Where faster funding fits once the business is yours
The SBA or bank loan pays the purchase price, and an SBA lender wouldn't count money borrowed against the business toward your down payment anyway. Faster products fit the months after closing, once the business is trading under your name and needs cash the acquisition loan didn't cover.
- Revenue-based financing covers working capital such as payroll in a slow season, a bigger inventory order or a marketing push. A funder buys a share of future sales and collects it from daily or weekly revenue, with amounts from $5,000 to $2,000,000 and funding typically within one to two business days. Our comparison of merchant cash advances and business loans shows when each one fits.
- A line of credit up to $250,000 lets you draw only what you need for inventory or a cash gap and repay weekly or monthly on what you've drawn, as our business line of credit guide explains.
- Equipment financing replaces or adds the oven, truck or machine the business needs, with the equipment as collateral and offers typically in one to two business days. See how equipment financing works.
Funders read the last four months of business bank statements, so the strongest time to apply is once the account in your name shows a few months of deposits. The funders we work with generally look for about a year in business and about $20,000 a month in deposits, and a business with a sales history often already has that. If you're not there yet, apply anyway. Some funders work with newer or smaller businesses, and we'll tell you what's realistic. Check your SBA loan agreement first, since it may limit additional debt and the SBA lender already holds a lien on the business's assets, and we'll factor that in.
How we help with a business acquisition loan
SBA and bank loans are among the products Today Capital Group places. We're a funding broker, so we place your file with lenders in our network whose programs fit the size and type of purchase, and the lender makes the credit decision. You fill out one application, there's nothing to pay to apply or to see offers, and there's no obligation to accept one. We help you put together the package lenders expect (the seller's financials and tax returns, your personal financial statement and debt schedule, the purchase agreement and your management plan) and keep it moving through underwriting. If you're buying a practice, our medical practice financing guide covers how SBA 7(a) loans fit buying out a retiring owner or a partner.
Once you have a business in mind, gather the seller's last three years of financial statements and the asking price, then apply or call us at (818) 351-0225 to talk through how the deal could be structured. Our SBA and bank loans page shows each step from file to closing.
Frequently asked questions
How to qualify for a business acquisition loan?
Lenders want to see that the business you're buying earns enough to cover all the new debt, that you can run it, and that you're bringing your own money. For an SBA 7(a) initial acquisition, that means an equity injection of at least 10% of the total project cost, a debt service coverage ratio of at least 1.25 on historical earnings, a valuation that supports the price, and a personal guarantee from every owner of 20% or more.
Can I get a 7(a) loan for business acquisition?
Yes. The SBA lists changes of ownership, complete or partial, among the uses of a 7(a) loan, up to $5 million. The loan follows the change of ownership rules in Appendix 15 of SOP 50 10 8.1, including a ten-year limit on amortization for the business itself, while real estate bought with it can run up to 25 years.
How much down payment do you need for an SBA loan to buy a business?
The SBA minimum for an initial acquisition is 10% of the total project cost, and the lender can't waive it. A seller note on full standby, with no payments for the whole term of the SBA loan, can cover up to half of that 10%, and the rest has to come from your own unborrowed cash or another eligible source.
Is it hard to get an SBA loan to buy a business?
It takes more paperwork than most financing, because the lender underwrites both you and the business. Deals with clean seller records, a price the valuation supports, cash flow comfortably above the 1.25 coverage requirement and a buyer with relevant experience tend to move through smoothly.
How long does it take to get an SBA loan to buy a business?
Plan on weeks to a few months. A standard SBA loan commonly funds in four to eight weeks from a complete file, and acquisitions often take longer because of the valuation, transcript checks, site visit and any lease, franchise or license transfers that need approval.
