What is a business acquisition loan?
A business acquisition loan finances the purchase of an existing business — typically structured as SBA 7(a) (up to $5M), conventional bank acquisition loans, or seller financing. Most acquisitions combine multiple sources: 70-80% bank/SBA loan + 10-20% seller financing + 10-20% buyer equity. Loans cover purchase price, working capital for transition, and inventory. Approval requires 680+ credit, business management experience, and detailed transition plan.
What Is a Business Acquisition Loan?
A business acquisition loan provides financing to purchase an existing operating business — including the business assets, goodwill, customer relationships, and in some cases real estate. The SBA 7(a) loan program is the primary vehicle for small business acquisitions under $5M.
SBA 7(a) for Business Acquisitions
SBA 7(a) loans are the gold standard for business acquisitions. The SBA guarantees 75–85% of the loan, enabling lenders to finance transactions that conventional banks won’t touch. Key terms: up to $5M, 10-year term for business purchase (25 years if real estate included), rates at Prime + 2.25–4.75%.
What Lenders Look For in Acquisition Loans
| Factor | What Lenders Evaluate |
|---|
| Business Cash Flow | Historical EBITDA supports debt service + owner salary |
| Purchase Price vs. Earnings | Multiple of 2–4x SDE (Seller Discretionary Earnings) is typical |
| Industry Experience | Buyer ideally has experience in the target industry |
| Down Payment | 10% minimum (SBA); 20–30% conventional |
| Seller Note | 10–20% seller financing strengthens approval |
| DSCR | 1.25+ including all debt service |
Business Acquisition Process
1. Identify target and sign LOI (Letter of Intent) • 2. Conduct due diligence (review 3 years of financials, tax returns, contracts) • 3. Obtain lender pre-qualification • 4. Submit SBA application (with business valuation) • 5. Underwriting (30–60 days) • 6. Closing and funding
Valuing a Business for Acquisition
Most small businesses sell for 2–4x Seller Discretionary Earnings (SDE) or 3–6x EBITDA for larger companies. SBA-approved appraisers or business brokers typically conduct formal valuations. The SBA requires an independent business valuation for loans over $250,000 where there is no market competition.
Frequently Asked Questions
What credit score do I need for a business acquisition loan?
SBA 7(a) acquisition loans require 680+ owner credit. Conventional acquisition loans typically require 700+ credit. Seller financing has no formal credit requirement (seller's choice). Most lenders also want 2-5 years of management or industry experience.
How much can I borrow to acquire a business?
SBA 7(a): up to $5M. Conventional acquisition loans: typically up to 2-3x trailing 12-month EBITDA. Most acquisitions are structured 70-80% senior debt, 10-20% seller note, 10-20% buyer equity. Don't over-leverage — lender stress tests assume 1.25-1.40 DSCR.
How is the seller financing structured?
Seller carries a subordinated note for 10-20% of purchase price, typically 5-7 year amortization with rates 5-10% APR. SBA 7(a) requires seller notes to be "standby" (no payments for 24 months) to count toward equity injection. Plan seller financing carefully — it affects bank/SBA approval.
How long do business acquisition loans take to close?
SBA 7(a) acquisition loans: 60-90 days from full application. Conventional acquisition loans: 30-60 days. Plan the entire acquisition timeline from LOI to close at 90-180 days. Letter of Intent should include financing contingency to protect your deposit.
What documentation do business acquisition loans require?
Buyer: business plan with transition strategy, personal financial statement, tax returns (3 years), resume. Seller business: 3 years of tax returns, financial statements, equipment list, customer list, AP/AR aging, business valuation. Acquisition: signed LOI or purchase agreement.
Can I get an SBA loan to buy a franchise?
Yes — SBA 7(a) loans for franchise acquisitions are common and well-understood by SBA lenders. SBA maintains a Franchise Directory of pre-approved franchise concepts; franchises in the directory get streamlined approval. Franchise fees, build-out, equipment, and working capital all qualify for SBA financing.
DC
Diana Chen
MBA, Small Business Finance Specialist
MBA Finance (Duke Fuqua), 9 years bank credit analysis and loan underwriting
Diana Chen holds an MBA in Finance from Duke University Fuqua School of Business and spent 9 years as a credit analyst and commercial loan officer at two regional banks. She focuses on SBA lending programs, underwriting standards, and business creditworthiness. Contributor to the NSBA resource library.
All content is reviewed against SBA, Federal Reserve, and CFPB guidelines. Small Business Loans Today is an independent affiliate publisher — not a lender or broker.
