Loan assumption

Definition

Stepping into the seller's existing loan on its current terms.

Why It Matters

A buyer hoping to inherit a cheap old rate from a business financed years ago is almost always disappointed, and the disappointment is expensive if it was in the model. Price every deal on a new loan at today's rate rather than the seller's, because the payment that made the business look comfortable was set in a different rate environment. Where an assumption genuinely is on the table, it comes with the lender's own approval of you and the same underwriting a fresh loan would need. On an SBA 7(a) the rulebook prices it: no new guaranty fee, and a lender's assumption fee of at most 1% of the balance, which the seller or the buyer may pay.

In numbers: A seller's loan at 5% looks like a gift when new money costs 10%, and on a $600k balance the rate gap is worth roughly $30k a year. But an assumption still needs the lender's approval of you, so underwrite today's rate, not the seller's.