Business Acquisition Loans, How to Finance Buying a Business

Most small business acquisitions are financed with a stack, not a single loan. The anchor is an SBA 7(a) loan, up to $5 million, with a minimum 10% equity injection, and up to half of that 10% can be a seller note on full standby. SBA caps the rate. On a 7(a) over $350,000 the cap is prime plus 3.0%, and prime sat at 6.75% on July 23, 2026, so 9.75% is today's ceiling. On top of the anchor, a seller note covers part of the price. A working capital line covers the first months after close.

Among our tested roster, Lendio is the pick for the loan itself, one application reaches SBA lenders and its acquisition floor starts at $250,000. National Funding is the pick for the fast working capital layer around the deal. Credibly picks up buyers below those bars. The wider toolkit lives in our funding options guide.

SBA doubled the cumulative limit. One borrower can now hold up to $10 million in SBA backed financing, up from $5 million, as long as the 7(a) loan comes first. The 7(a) maximum itself did not move. It is still $5 million. What moved is how much 504 money can sit on top of it.

That distinction matters here. A 504 loan cannot buy an operating business. SBA restricts 504 proceeds to fixed assets, land, buildings, and long life machinery, and it excludes working capital outright. So if you are buying goodwill, a customer list, and a van, this change does nothing for you.

It changes a lot for the buyer whose deal includes the building. Before July 4, a $5 million 7(a) used the whole allowance and the property had to be financed somewhere else. Now the business can sit on the 7(a) and the real estate on a 504, up to $10 million between them. Small manufacturers get the widest version. They can hold an unlimited number of 504 loans tied to distinct projects and still take $5 million through 7(a).

A startup asks a lender to believe your spreadsheet. An acquisition shows the lender eleven years of bank statements. That is the entire difference. Lenders price belief expensively and evidence cheaply. It is why acquisition debt is capped near 9.75% while startup borrowing gets quoted 35% or declined. If the business you want has two or more years of steady cash flow, the financing system is built in your favor.

Take a $500,000 purchase. A standard structure looks like this. You put in $25,000 cash, which is 5%. The seller carries a $25,000 note on full standby, meaning no payments while the SBA loan runs, which covers the other 5% of the required injection. An SBA 7(a) loan funds the remaining $450,000.

Price it at the ceiling. At 9.75% over 10 years the SBA payment is about $5,885 a month, call it $70,600 a year. Lenders want the business to earn at least 1.25 times its debt payments, so this deal needs around $88,300 in annual cash flow after the owner's salary. Clear that bar at the cap and you clear it at any rate you actually get. If it does not clear, the price is too high, not the lender too strict.

Seller notes deserve respect. Buyers rarely give it. A seller who refuses to carry any paper is telling you what they think of their own books. Most sellers of healthy small businesses will carry 10% to 30% when asked, and the ask costs you nothing.

Four things decide an acquisition loan. Your credit, most SBA lenders want a 680 or better from the buyer. The target's cash flow, two years of returns showing debt coverage of 1.25 or higher. Your experience, two years in the industry or in management, they are lending you a company to run. And the injection, 10% that is truly yours, borrowed down payments do not count, though the standby seller note structure above is fully allowed.

They check the price as well. A lender will not fund a business priced far above its earnings, so sanity check the asking figure before you apply. Our business valuation calculator prices it on 2026 closed deal multiples.

One, get the target's numbers. Three years of tax returns and a current profit and loss, no lender talks seriously without them. Two, agree a price and sign a letter of intent that names the seller note. Three, apply, one form through a marketplace reaches multiple SBA lenders at once and lets you compare terms. Four, survive underwriting, the lender orders a valuation, verifies the books, and stress tests the coverage ratio, expect one to three months end to end. Five, close and immediately set up the working capital layer, the first ninety days of ownership eat cash, payroll lands before receivables do. If cash flow timing is the worry, working capital loans and invoice factoring are the two standard answers.

Some deals deserve a no. Walk away when the coverage math only works with growth you have to create. Buy the business the books show, not the one you imagine running. Walk when the seller wants all cash at close and will carry nothing. And walk when the equipment list is doing the valuation's heavy lifting, equipment financed separately usually prices better than equipment bundled into the purchase.

Then the closing table. The lender wants proof of hazard insurance on whatever secures the loan, and the policy has to be live before the money moves.

Here is the part almost nobody gets right. Under 13 CFR 120.160(c) the SBA requires hazard insurance for 7(a) loans over $500,000, and for 504 projects over $500,000, on all collateral. That is the whole rule. A smaller 7(a) loan carries no SBA hazard insurance requirement at all.

So say you borrow $150,000 and your lender asks for it. That is your lender's own credit policy, not an SBA rule. It is still a real condition, and refusing it will still stop your closing. But know which one you are arguing with. A lender policy can sometimes be negotiated. A federal regulation cannot.

The rule ties the cover to collateral, not to the loan. It sets no formula for how much you need. Your loan authorization does that, and the figure usually tracks what the secured asset would cost to replace rather than what you paid. Ask for it in writing early. Buying a policy in the last week of a closing is how people overpay.

Two things to do first. Ask for the insurance conditions at term sheet stage, not at closing. Then check whether a policy you already hold covers it, because an existing property policy often does once the lender is named on it. Our business insurance guide covers what the common policies actually include.