How to Finance the Purchase of a Business

Buying an existing business can be a faster path to growth than building from scratch — but financing the purchase requires understanding the structures available, the down payment needed, and what lenders evaluate. This guide covers the main paths to financing a business acquisition.

The Main Financing Structures

Business acquisitions are typically financed through a combination of:

• SBA 7(a) loan — Government-backed term loan for business acquisition, often with lower down payments and longer terms. Learn more.
• Conventional term loan — Bank or lender financing without government backing. Typically requires stronger credit and larger down payment.
• Seller financing (seller note) — The seller finances a portion of the purchase price, paid over time. Learn more.
• Buyer equity — Cash the buyer brings to the transaction as a down payment.
• Asset-based financing — Financing secured by the business's assets (equipment, receivables, inventory).

Most acquisitions use a combination — for example, an SBA 7(a) loan for 75% of the purchase price, seller financing for 10%, and buyer equity for 15%.

How Much Down Payment Do You Need?

The down payment depends on the financing structure:

• SBA 7(a): Typically 10% down (the buyer's equity injection), though this can vary based on the transaction and lender.
• Conventional: Typically 20–30% down, sometimes more depending on the business and lender.
• Seller financing: Can reduce the cash needed at closing, but the seller note still needs to be repaid over time.

Read our guide on business acquisition down payments for more detail.

What Lenders Evaluate

Whether you qualify for acquisition financing — and on what terms — depends on:

• The business's cash flow. Can the business's cash flow cover the new debt service (the loan payments) after operating expenses?
• Debt Service Coverage Ratio (DSCR). Most lenders look for a minimum DSCR of 1.15–1.25 for acquisition loans.
• The buyer's experience. Lenders want to see that the buyer has experience relevant to the business being acquired.
• Credit profile. Both the business's and the buyer's credit are evaluated.
• The purchase price vs. the business's value. Lenders may require a business valuation to confirm the price is reasonable.
• Collateral. The business's assets (equipment, real estate, receivables) may serve as collateral.

SBA 7(a) for Business Acquisition

The SBA 7(a) loan program is one of the most common ways to finance a business acquisition. It offers government-backed financing with lower down payments (typically 10%) and longer terms (up to 10 years for business acquisition, 25 years if real estate is included). However, SBA loans have specific eligibility requirements, and not all businesses or transactions qualify. Read our SBA 7(a) business acquisition guide and our SBA loan requirements guide for more detail.

Seller Financing

In many acquisitions, the seller agrees to finance a portion of the purchase price. This is called a seller note or seller financing. The buyer pays the seller a portion of the price over time, typically with interest. Seller financing can reduce the cash needed at closing and can help bridge gaps that traditional financing won't cover. Read our seller financing guide for more detail.

What to Prepare

If you're planning to finance a business acquisition, prepare:

• The business's financial statements (3 years of tax returns, P&L, balance sheet)
• Interim financials and year-to-date performance
• Business debt schedule
• Personal financial statement and credit report
• Business plan or summary of the acquisition
• Business valuation or purchase agreement
• Resume showing relevant experience

Next Step

If you're planning to acquire a business, submit your information for a review, or explore our business acquisition financing page to understand the options.