How SBA 7(a) acquisition financing actually works
What the SBA 7(a) programme covers when you are buying a business, how much you need to put in, and what lenders look at before they say yes.
Most small business acquisitions in the United States are financed through the SBA 7(a) programme. It is not a loan from the SBA. It is a loan from a bank that the SBA partially guarantees, which is why a lender will look at a deal that would otherwise be too small or too thin on collateral.
What it can cover
- The purchase price of the business, including goodwill
- Working capital to run it after closing
- Equipment and fixtures that come with the sale
- Closing costs and fees, which can usually be rolled in
Loans run up to $5 million. Acquisition loans are commonly written over ten years, which keeps the monthly payment low enough that the business can service the debt out of its own cash flow.
What you need to bring
Expect to contribute around ten percent of the total project cost. That does not all have to be your own cash. A seller note can often count toward part of it, provided the seller agrees to stand behind the bank for the life of the loan.
Anyone owning twenty percent or more of the buying entity personally guarantees the loan. There is no way around that, and it is the part first-time buyers most often underestimate.
What the lender is really assessing
The buyer matters, but the business matters more.
- Whether cash flow covers the new debt payment with room to spare
- How concentrated the customer base is
- Whether the business depends on the departing owner personally
- The lease, and whether it runs long enough to match the loan
- Your experience, and how relevant it is to this business
An independent valuation is normally required once the loan passes $250,000.
Where deals slow down
The most common delay is not credit. It is incomplete records from the seller. Three years of tax returns and financial statements that reconcile to each other will move a file faster than anything else.
Terms vary by lender and by deal, and nothing here is a commitment to lend. If you are looking at a specific business, we are happy to tell you early whether it is likely to finance.