Business Acquisition Loans

Documents Lenders Ask For

• Three years of the seller's business tax returns and financial statements

• A current interim statement and the same period from last year

• Your personal tax returns, personal financial statement and resume

• The letter of intent or signed purchase agreement

• A business plan with projections and a transition plan

• Bank statements showing your down payment funds

• The current lease, plus a list of equipment and key contracts

Why Applications Stall

• The price outruns the valuation. If the independent valuation comes in low, the buyer has to renegotiate or bring more cash.

• Tax returns do not match the books. SBA lenders verify the seller's financials against IRS transcripts, and large gaps raise questions.

• Undocumented add-backs. Owner perks added back to profit need receipts and a clear explanation.

• Customer concentration. One customer providing a large share of revenue makes lenders cautious.

• Lease problems. A lease that cannot be assigned, or has little time left, can stop a deal.

• Down payment sourcing. Funds that appear without a paper trail must be explained before closing.

Frequently Asked Questions

Can I use a business acquisition loan to buy a franchise?
Yes. Franchise resales and purchases of existing units are common. For SBA financing, a brand that meets the FTC definition of a franchise must be listed in the SBA Franchise Directory.

Will I have to sign a personal guarantee?
Almost always. SBA rules require an unlimited personal guarantee from anyone who owns 20 percent or more of the borrower, and most conventional lenders ask for guarantees as well.

Who prepares the business valuation?
On SBA loans the valuation must be ordered by and prepared for the lender. If the business purchase price is $350,000 or less, the lender may do its own valuation unless the buyer and seller have a close relationship.

Explore Your Financing Options

Before you make an offer, gather the seller's financials, your own financial statement and a rough sources-and-uses budget. Comparing business acquisition loans from more than one lender type will show you how down payment, term and approval speed differ, so you can pick the structure that fits your deal.

A business acquisition loan is a term loan used to buy an existing company, covering part of the purchase price plus related costs such as working capital and closing fees. The lender underwrites the target's track record and your ability to run it, and you repay the debt from the business's cash flow after the sale.

This page works as a buyer's checklist. It covers what the loan can pay for, which loan fits which kind of deal, the SBA rules that took effect on October 1, 2026, where your down payment can come from, and the issues that most often slow an application down.

What the Loan Can Pay For

• The purchase price. Including goodwill, the part of the price above the value of hard assets, which is often the largest piece in a service business.

• Equipment, vehicles and inventory that transfer with the sale.

• Working capital to carry payroll and receivables during the first months under new ownership.

• Closing costs such as the business valuation, legal fees and lender fees.

• The seller's existing business debt, when it is paid off at closing as part of the purchase.

• Real estate, either in the same loan or through a separate property loan.

Matching the Loan to the Deal

Most buyers have more than one route to a business acquisition loan. The better fit depends on your collateral, your experience and what the seller will accept.

• First-time buyer with limited collateral. An SBA 7(a) loan is the usual starting point. The SBA guarantee lets a lender finance goodwill and accept a 10 percent down payment, and the SBA lists a maximum 7(a) loan of $5 million.

• Experienced operator with strong personal assets. A conventional bank term loan may close with fewer program rules, though banks often want a larger down payment and shorter terms.

• Asset-heavy target with uneven profits. An asset-based lender can advance against receivables, inventory and equipment when cash flow alone will not support the debt.

• Seller who wants to exit gradually. A seller note for part of the price lowers the bank loan and keeps the seller invested in the handover.

• Deal that includes the building. The property can be added to a 7(a) loan with a longer term on the real estate portion, or financed separately with an SBA 504 loan.

SBA Rules for Buying a Business

The SBA's lending rulebook for 7(a) loans, SOP 50 10 8.1, took effect on October 1, 2026, and it sorts changes of ownership into categories with different standards. A purchase by an outside buyer is treated as an Initial Acquisition. Key points for that category:

• Equity injection of at least 10 percent of total project cost, which the lender cannot reduce or waive.

• Debt service coverage of at least 1.25 to 1, based on the last fiscal year or an average of the last two.

• A business valuation prepared for the lender, not for the buyer or seller. Total debt cannot exceed the valuation amount.

• A quality of earnings report when the business purchase price, excluding real estate, is $3 million or more.

• Seller exit. The seller cannot stay as an owner, officer or employee but may consult for up to 24 months.

• No seller earnouts, though buyer rebates tied to performance are allowed.

• Amortization of no more than 10 years on the business portion. Only a real estate portion can run longer, up to 25 years.

Lenders can add their own requirements on top of these, and SBA policy changes from time to time, so confirm the current rules with any lender you talk to.

Down Payment: How Much and From Where

For an SBA purchase by a new owner, the 10 percent injection is measured against total project cost, not just the price. If the price is $1,000,000 and closing costs and working capital add $100,000, the minimum injection is $110,000.

SBA rules allow these sources without limit:

• Cash that is not borrowed, including documented gifts

• A personal loan to a guarantor, if repayment comes from a source other than the business (salary paid by the business does not qualify)

• Grants with no repayment conditions

• Verified prepaid expenses for the project

Seller debt on full standby, other standby debt, and small non-controlling equity investments can also count, but together they can supply no more than half of the required injection. Conventional lenders set their own rules and often ask for a larger cash down payment.