SBA 7(a) loan

Definition

The government-guaranteed loan most small acquisitions run on.

Why It Matters

It is the reason an individual can buy a one-to-five-million-dollar business with roughly 10% down: the government guarantee lets a bank lend against goodwill it could never collateralize alone. Its rules then shape nearly every self-funded deal, from the equity injection to seller-note standby to the personal guarantee, so learning the program is learning the structure.

In numbers: On a $1.5M service-business acquisition, the 7(a) lends $1.35M over ten years and the buyer injects $150k. The trucks and equipment might appraise at $200k, so the other $1.3M of the price is goodwill; a conventional bank has almost nothing to repossess, which is why it says no and the guaranteed loan says yes.