Most buyers show up thinking the hard part is finding the business. It's not. The hard part is getting from signed LOI to funded deal without the file dying somewhere in underwriting — and that part has a sequence. Skip a step, do two of them in the wrong order, and you can lose weeks you didn't have.
This is that sequence.
What kind of SBA loan is used to buy a business?
The SBA 7(a) loan is the standard vehicle for business acquisitions. Most deals use the standard 7(a) up to $5 million, with a 10-year repayment term on goodwill and business assets (real estate can stretch to 25 years if it's part of the deal). The SBA Express program caps out at $500,000 and isn't typically used for full acquisitions — the underwriting flexibility you get with a standard 7(a) is worth the extra paperwork.
For deals that include owner-occupied commercial real estate, the SBA 504 program is worth a look. You'd use a conventional first mortgage plus a CDC/SBA second — it's more complex to structure, but the below-market fixed rate on the 504 piece can pencil better over a long hold. Most pure business acquisitions without real estate stick with 7(a).
The SBA guarantee runs up to 75% on loans over $150,000, which is why lenders will go to places conventional financing won't — thin collateral, limited operating history on the buyer, goodwill-heavy purchase prices.
How much do you need to put down to buy a business with an SBA loan?
The SBA requires a minimum 10% equity injection for acquisition deals. In practice, most lenders want to see that 10% come from the buyer's own liquid assets — not a loan from a family member, not retirement funds pulled at the last minute without a paper trail. Sourcing and seasoning matter.
Full standby seller notes can sometimes count toward injection, depending on how the deal is structured and which lender you're using. The current SBA SOP 50 10 8 guidance gives some flexibility here, but lenders apply it inconsistently. Get clarity on this before you negotiate the purchase price.
One thing buyers consistently underestimate: closing costs. Lender fees, SBA guarantee fee (which runs roughly 3.5% on the guaranteed portion of most mid-sized loans), legal fees, environmental reports if real estate is involved — budget 3-5% of the loan amount on top of your down payment.
What do SBA lenders look at when underwriting a business acquisition?
Four things, in rough order of importance:
Business cash flow. The lender is underwriting the business you're buying, not just you. They want to see global DSCR — that's the business's earnings relative to all proposed debt service — above 1.25× on the most recent full year, and ideally trending in the right direction over the prior two. DSCR comes in below 1.15× and most files don't survive.
Your management experience. You don't need to have owned a business before, but you need relevant industry or management background. A former regional sales manager buying a distribution company has a story. A dentist buying a car wash does not — at least not without a very patient lender and a strong management team staying on.
Your personal credit. There's no SBA-mandated minimum, but most preferred lenders want a 680 or better. Below 650 and your options narrow significantly.
Collateral. The SBA does not require the loan to be fully collateralized, but lenders are required to take available collateral — business assets, then personal assets if the loan exceeds $500,000. If you own a home with equity in it, expect it to be on the collateral schedule.
What's the actual step-by-step process?
Here's how a clean acquisition deal moves from idea to funded. Not every deal hits every step in exactly this order, but this is close.
Step 1: Get pre-qualified before you make an offer. Serious sellers and their brokers want to know you can close. A pre-qualification letter from an SBA lender or broker isn't binding, but it tells everyone at the table you've been looked at. It also tells you what price range makes sense given your liquidity and the target's financials.
Step 2: Sign an LOI with a financing contingency. Your letter of intent should include a financing contingency and enough time to complete SBA underwriting — 60 days minimum, 75 is better. Sellers will push back. Hold the line. Rushing this is where deals blow up.
Step 3: Engage an SBA lender or broker and submit the loan package. The package typically includes: three years of business tax returns, current year-to-date P&L and balance sheet, three years of your personal tax returns, a personal financial statement (SBA Form 413), a resume showing relevant experience, and the purchase agreement or LOI. If the lender also wants a business plan or projections, that's usually a sign you're in for a longer underwriting conversation.
Step 4: Lender orders third-party reports. Business valuation (required by SBA on most acquisition loans), environmental report if real estate is involved, and sometimes a quality of earnings review on larger deals. The business valuation alone takes 2-3 weeks. This is the step most buyers don't account for in their timeline.
Step 5: Underwriting and SBA submission. Preferred Lender Program (PLP) lenders can approve in-house without sending the file to the SBA — this is why using a PLP lender matters. Approved lenders have to submit to SBA for a credit decision, which adds 2-5 weeks. If your lender isn't a PLP, ask why.
Step 6: Commitment letter and closing prep. Once approved, the lender issues a commitment letter with conditions. Common conditions: evidence of injection funds, signed lease assignment, updated business financials, corporate documents on the entity you're buying through. Work through them fast — commitments expire.
Step 7: Closing. SBA closings typically involve an attorney's office and a closing package that runs thick. The SBA has specific form requirements (note, guarantee, compliance certifications). Expect the closing itself to take half a day. Funds usually wire the same day or next morning.
Total timeline from complete loan package to funding: 45-75 days for a clean deal at a PLP lender. Add 3-4 weeks if you need an SBA direct submission, or if the business valuation comes back with a problem.
What kills SBA acquisition deals?
More files die in the first 10 days than in underwriting. Common causes:
- Purchase price isn't supported by a business valuation (you agreed to pay more than the business is worth on paper)
- Cash flow doesn't support the debt service at the proposed loan amount
- Buyer's injection funds can't be documented or sourced
- Seller won't provide three years of clean tax returns
- Lease has less than 10 years remaining (including options) and the landlord won't cooperate on an assignment
The valuation issue is the one that surprises people most. You can negotiate a great price and still watch the deal fall apart because the appraiser looked at the same three years of tax returns your lender did and came up with a number 20% lower than what you agreed to pay. If the financials are thin, get an informal valuation read before you sign the LOI.
Do you need a broker to get an SBA loan?
No. You can go directly to an SBA lender. But the right broker shortens the timeline, keeps the file out of the wrong lender's hands (not every SBA lender does acquisitions well — some essentially don't do them at all), and helps you structure the deal in a way that survives underwriting before you're 45 days into a 60-day contingency window.
The broker's fee is paid at closing and typically runs 1-2% of the loan amount. On a $2 million deal, that's $20,000-$40,000. If it gets you to the closing table on a deal that would have otherwise stalled, the math is obvious.