SBA Loan for Business Acquisition: Buying a Company With 10% Down
Acquisition is the fastest legitimate path to owning a cash-flowing business — if the deal services its own debt.
June 30, 2026 · 8 min read
Funding to buy an existing business is one of the strongest uses of SBA 7(a) capital. You are buying established revenue rather than building it, and the SBA guaranty lets a lender extend a ten-year term with roughly 10 percent down — leverage no conventional lender will match for a goodwill-heavy deal.
The capital stack
- SBA 7(a) loan: typically 80 to 90 percent of the total project cost.
- Buyer equity injection: minimum 10 percent of project cost, at least half of which must generally be non-borrowed cash.
- Seller note: often 5 percent, and if placed on full standby for the life of the loan it can count toward part of the injection requirement.
Does the deal service its own debt?
This is the whole underwrite. Take the target's seller-discretionary earnings, subtract a reasonable owner salary for you, subtract capital expenditure, and divide by annual debt service on the new loan. Lenders want 1.25 or better. A deal that pencils at 1.05 will not close no matter how much you like the business.
Price is negotiable. Cash flow is not. Reprice the deal to the coverage ratio rather than trying to talk a lender past it.
What lenders want from you as the buyer
- Direct or closely transferable industry management experience — the single biggest qualitative factor.
- 680+ personal FICO and a personal financial statement showing post-closing liquidity.
- A credible transition plan with the seller, usually 30 to 90 days of training plus a non-compete.
- Clean federal debt history.
From LOI to close
- Sign an LOI with a diligence period of 45 to 60 days and an SBA financing contingency.
- Deliver three years of the target's returns and financials to your lender for a preliminary read within a week.
- Complete quality-of-earnings review and lease assignment diligence in parallel with credit underwriting.
- Lender orders a third-party business valuation for any acquisition above $250,000 with goodwill.
- Credit approval, commitment letter, closing conditions, funding — typically 60 to 90 days from a complete package.
Franchise acquisitions
Franchise financing requirements add one layer: the brand must appear in the SBA Franchise Directory, and the lender needs the FDD, the signed franchise agreement and the franchisor's consent to transfer. Established brands with strong unit economics often see faster approvals than independent targets because performance data is available.
Where buyers lose deals
Waiting until the LOI is signed to talk to a lender, discovering the injection cannot be sourced, underestimating working capital needs after close, and letting the diligence period expire while the SBA package sits incomplete. Line up financing before you negotiate, not after.
