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.