Using SBA Loans to Fund Your Business Acquisition

The SBA 7(a) loan program is one of the best-kept secrets in business acquisitions. It allows buyers to acquire businesses with as little as 10-15% down, with favorable terms that make deals possible for first-time buyers.

What Is an SBA 7(a) Loan?

The Small Business Administration doesn't lend money directly. Instead, it guarantees a portion of loans made by approved lenders, reducing their risk and enabling them to offer better terms. For acquisitions, SBA 7(a) loans can cover up to $5 million.

Key Terms

• Down payment: 10-15% (vs 25-30% for conventional)
• Interest rate: Prime + 1.75-2.75% (variable)
• Repayment: Up to 10 years for business acquisitions
• Guarantee fee: 2-3.5% of guaranteed portion

Eligibility Requirements

• Business must be based in the US and operating for profit
• Buyer must have relevant experience or management capability
• Business must demonstrate ability to repay from cash flow
• Buyer needs good personal credit (typically 680+)
• Full-time owner-operator requirement

What SBA Lenders Look For

Debt Service Coverage Ratio (DSCR): The business needs to generate enough cash to cover loan payments plus a margin. Most lenders want 1.25x DSCR minimum—meaning $1.25 in cash flow for every $1 in debt payments.

Buyer experience: Industry experience or transferable management skills. A tech executive buying a tech company is an easy sell. A marketing manager buying a plumbing company needs a stronger narrative.

Collateral: Business assets plus personal guarantees. SBA loans require all available collateral, but won't decline a loan solely for lack of collateral.

The Process

1. Get pre-qualified with an SBA-preferred lender
2. Find and negotiate your acquisition
3. Submit full application with business financials, projections, and your resume
4. Lender reviews and submits to SBA (if needed)
5. Approval, closing, and funding (typically 60-90 days)

Pro Tips

• Start lender conversations early—before you find a deal
• Work with SBA Preferred Lenders for faster processing
• Seller notes can count toward your equity injection (with restrictions)
• Get a good SBA attorney—the closing docs are complex

Looking for acquisition financing? Explore financing options on Exit Street →