How to Get an SBA Loan to Buy a Business

The Short Answer

The SBA 7(a) loan is the agency's primary business loan program, and a change of ownership, complete or partial, is one of the uses it names. Abank makes the loan, and the Small Business Administration guarantees 75% of it above $150,000 and 85% at or below it. That guarantee is what lets the bank lend against a business's cash flow and goodwill rather than hard collateral, and it runs to a single 7(a) loan of $5M, which is what puts a ceiling on the size of business this path reaches. There is a second ceiling on the guarantee rather than the loan: the SBA backs at most $3,750,000 across everything one borrower owes it. A single 5M loan uses that allowance in full, so the buyer who borrows to the cap has no guaranteed capacity left for a second business. You bring an equity injection of at least 10% of the project cost, the loan covers most of the rest, and a seller note can fill part of your share. The bank underwrites whether the business's cash flow covers the payment. The rest of this page is that process in order, each step linked to the tool or data that works it, under SOP 50 10 8.1; what that edition changed for a buyer is set out rule by rule on the SBA rule changes page.

Check You Are Eligible

The 7(a) program has threshold rules before any deal math matters: size limits, ownership and citizenship requirements, and eligible business types. Run your situation through the SBA Eligibility Pre-Check, which walks the questions a lender asks first and states each rule in full underneath them. It states your answers back without claiming eligibility, because eligibility is the lender's call on the whole file, not a banner a calculator can issue.

One of those gates moved recently enough that most guides are wrong about it. Since March 1, 2026 every direct and indirect owner must be a US citizen or US national whose principal residence is in the United States. Lawful permanent residents were eligible owners before that date and are not now, and a short-lived allowance for a small foreign minority stake was rescinded at the same time. Two notices carry the change: Policy Notice 5000-876441 made it, and Procedural Notice 5000-876626 wrote it into SOP 50 10 8, and SOP 50 10 8.1 carries it.

Three consequences a reader in that position needs, all from the same notice. There is no minimum: an ineligible owner at any percentage fails the file, and ownership held by spouses and minor children is combined. The cure is divesting completely before the SBA loan number issues, and the rule looks back six months from that date. And it catches people who do not expect it, including a US citizen whose principal residence is outside the country. Naturalizing removes the bar with no further conditions attached.

None of that stops a buyer who is not a citizen, a Canadian included, from buying a US business. It stops the SBA loan. The purchase runs on cash, a bank lending without the guaranty or the seller's own financing, the routes under Buying Without an SBA Loan. Whether you may live in the US to run it is an immigration question the SBA does not answer, and one for an immigration lawyer before the letter of intent.

What the Bank Underwrites

The center of the decision is coverage: can the business's earnings clear the loan payment with room to spare? The SBA sets the floor itself: a debt service coverage ratio of at least 1.25 on the last fiscal year or a two-year average, meaning cash flow after the new owner's pay should run 25% above debt service. Projections count only for a special purpose property whose appraisal fully covers the loan. Clean books that tie to the tax returns and defensible add-backs are what make the earnings financeable. Test the whole structure, DSCR included, against the industry's cited band and charge-off rate with the Underwriter before you rely on it. The plan the underwriter reads beside the numbers is drafted in the Business Plan Worksheet, in the order a bank reads it. The two forms every file opens with, the personal financial statement and the borrower information form, are worksheets on Worksheets & Checklists.

The bank reads the purchase agreement as well, schedules and amendments included, and two of its terms are the rulebook's rather than the negotiation's. No seller earnout: the SBA prohibits it, though a buyer rebate tied to performance is allowed and pays down the loan. The seller stays only as a consultant, for at most 24 months. A third depends on the space. Where $500,000 or 30% of the loan goes into improvements or attached equipment, the lease, counting renewal options only you hold, should run as long as the loan, and must if the lender cannot get an assignment and a landlord's waiver. The rest of the reading is Reading the Purchase Agreement.

Two more lines are drawn on the price, real estate aside. At $3,000,000 or more, an outright purchase needs a quality of earnings report done for the lender, and the seller may not commission it. At $350,000 or less the lender may value the business itself; above that, an outside business appraisal is part of the file. Where the building is in the deal, the loan runs longer: the business is financed over 10 years, the property over up to 25, and one loan blends the two by the property's share. The calculator works it both ways, one loan or a 504 beside it, under When the Building Is in the Price.

Find a Lender That Funds Your Deal

Not every bank lends to every deal: lenders specialize by industry, size, and geography, and the wrong lender is a slow no. See which banks are actually active in your industry and state in the acquisition-lending data and lenders by industry, both computed from the SBA's own loan-level file and filtered to change-of-ownership loans. Then work the shelf of Lenders, which draws only from lenders that hold a verified directory review.

Model the Loan

Before you talk to a bank, know your own numbers. The SBA Acquisition Calculator runs the payment, coverage, and cash required at today's rates (typically around 9%, the prime rate plus a spread that moves with it), including a seller note beside the loan. The Sources & Uses Builder totals the real project cost, price plus working capital, closing costs, and the SBA guaranty fee, so the loan amount reflects what the deal actually needs rather than the sticker price alone.

The rate has a ceiling the SBA sets, not the bank. A floating 7(a) above $350,000 may not be priced above prime plus 3 points, and smaller loans carry wider caps; see the SBA maximum interest rate. The quote comparer on the calculator page flags any term sheet above the line for its size.

The Equity Injection

The SBA requires at least 10% of the total project cost as equity on an outright purchase, a floor no lender can reduce, and this is where many buyers get stuck. Up to half of it can come from a seller note subordinated to the bank and on full standby, a half it shares with other standby debt and any investor under 20% with no control. The rest has to come from sources the rules leave uncapped, savings, a gift or an investor at 20% or more among them. The bank, the note and the equity are the layers of the capital stack, in the order each is repaid. If the injection itself is the obstacle, How to Buy a Business With No Money covers the low-cash structures that genuinely exist and their limits, and the cost breakdown puts the injection in the context of the full bill.

Who Has to Sign Personally

Everyone owning 20% or more of the buying entity guarantees the loan personally, and the guarantee is for the whole debt rather than for a share of it proportional to the stake. Below that line a lender may still ask, and often does. Two equal partners therefore produce two full guarantees on one loan, which is its own conversation to have before you sign.

The spouse question has a published answer, in the same SOP 50 10 8.1, and it counts more people than a couple. A spouse owning less than 20% guarantees the loan in full once the combined interest of both spouses and any minor children reaches 20%, so splitting ownership across a household does not get anyone out of it. A spouse who owns nothing signs the collateral documents and, where jointly held collateral is pledged, a guaranty limited to their own interest in it. That is how the family house enters the file without the spouse becoming a borrower. In a community property state, where what either spouse earns or buys in the marriage belongs to both, that interest is half of what the couple acquired during the marriage, which is why the spouse's signature is asked for early there.

Holding the stake through a trust does not move it either. Where trusts own 20% or more of the buyer between them, each trust gives an unlimited guaranty signed by its trustee, and the person who set the trust up guarantees the loan personally as well. Anyone who gave money into the trust is treated as that person when eligibility is checked.

There is no structure that removes it, which is worth knowing before you spend a meeting on one, and leaving the program does not reliably remove it either, as the section below says. What the signature actually REACHES, and the lien on the house that people ask about last and worry about first, is answered in what happens if the business fails.

The Rest of the Rulebook

The steps above carry the rules that decide whether a deal is financed at all. These are the others a buyer meets on the way, each read from SOP 50 10 8.1 itself.

The Timeline

An SBA acquisition typically runs two to four months from signed letter of intent to funded loan, gated by diligence, the appraisal or business valuation the lender orders, and the SBA's own paperwork. Stage the whole financing arc, from readiness through close, in the Searcher's Roadmap, or see the full cash-to-close picture, loan and all, in How to Buy a Business.

Buying Without an SBA Loan

Three things send buyers looking for another route: a gate that fails the eligibility check, a timeline that will not fit the seller's, or an objection to signing personally. Two of those are worth testing before you give up the program, because what it hands you is hard to replace: about 10 years of amortization with no balloon, at roughly 9% today, from a pool of banks behind the 7,533 change-of-ownership loans the SBA approved in FY2025. Replacing it means replacing the term and the lender, not just the money.

The first alternative is the seller. A seller note is usually a top-up to the injection; as the whole instrument it is a different negotiation, because the seller now carries the risk a bank would have carried and prices it into the multiple. The second is a bank lending without the guaranty, which asks the questions the guaranty used to answer. The third is equity rather than debt: search capital and co-investors buy a share of the business instead of charging interest on it, and what those investors look for is its own question.

If what failed was the citizenship gate rather than the deal, the SBA's own notices name no alternative at all. They close the door and say nothing about where anyone goes next, so the routes above are the field's rather than the agency's.

Two things this site will not tell you, because nothing it would cite publishes them. There is no rate or term here for conventional acquisition debt: those are quoted deal by deal and no source at this site's bar states a band. And leaving the program does not by itself remove the personal guarantee. Ask each lender whether theirs comes off rather than assuming the rule you were avoiding was the SBA's.

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