SBA 7(a) Loans for Business Acquisition

The SBA 7(a) loan program is one of the most common ways to finance a business acquisition. It's a government-backed loan program that offers lower down payments and longer terms than most conventional financing — making it attractive for buyers who don't have large cash reserves.

What Is an SBA 7(a) Loan?

An SBA 7(a) loan is a term loan made by an SBA-approved lender and partially guaranteed by the Small Business Administration. The SBA guarantee reduces the lender's risk, which allows lenders to offer financing that might not otherwise be available — including lower down payments, longer terms, and financing for businesses that might not qualify for conventional loans.

How SBA 7(a) Works for Business Acquisition

For business acquisitions, SBA 7(a) loans typically offer:

• Down payment: Typically 10% (the buyer's equity injection), though this can vary based on the transaction and lender.
• Loan term: Up to 10 years for a business acquisition (no real estate), or up to 25 years if real estate is included in the purchase.
• Loan amount: Up to $5 million for standard 7(a) loans.
• Use of proceeds: Can be used to finance the purchase of an existing business, including business assets, goodwill, and working capital.

Eligibility Requirements

SBA 7(a) loans have specific eligibility requirements. The business must:

• Be a for-profit business operating in the U.S.
• Meet SBA size standards (varies by industry, typically based on number of employees or average annual revenue)
• Demonstrate the ability to repay the loan from the business's cash flow
• Have the buyer demonstrate relevant experience
• Not be engaged in ineligible activities (gambling, lending, speculation, etc.)

Read our SBA loan requirements guide for more detail on eligibility.

What Lenders Evaluate

• Debt Service Coverage Ratio (DSCR): Most SBA lenders look for a minimum DSCR of 1.15–1.25.
• Buyer's equity injection: Typically 10% of the total project cost.
• Buyer's experience: Relevant industry or management experience.
• Credit: Both business and personal credit of the buyer.
• Business cash flow: The business's historical and projected cash flow must support the loan payments.
• Collateral: SBA loans don't always require full collateral, but lenders will evaluate available collateral.

Important Considerations

• SBA 7(a) loans require a personal guarantee from any owner with 20% or more ownership.
• SBA loans have specific requirements for the purchase price, including a business valuation.
• Goodwill (the portion of the purchase price above the value of tangible assets) can be financed with SBA 7(a), subject to limits.
• SBA loan eligibility and requirements can change. Always verify current requirements with an SBA-approved lender.

Next Step

If you're planning to acquire a business and want to explore SBA 7(a) financing, submit your information for a review, or read our comprehensive business acquisition financing guide.