Business Acquisition Loans: SBA 7(a), Conventional, and Seller Financing
Acquisition financing is the highest-stakes loan in SMB. The deal structure, equity injection source, seller note terms, and use of working capital line all interact. Getting it right is the difference between owning a thriving business and being underwater on day one.
SBA 7(a) is the dominant product
$5M cap, 10-year amortization for goodwill, 25-year for real estate, 10% equity injection minimum. Backed by SBA guarantee, which lets lenders extend credit on cash-flow rather than collateral.
Equity injection sources
Cash from buyer, ROBS (Rollovers as Business Startups using retirement funds), seller note on full standby for 24 months (counts as equity), or gift from family with proper documentation.
Seller note structuring
Seller carries 10–25% of purchase price as a note behind the bank. Standby seller notes (no payments for 24 months) count toward equity injection. Performing seller notes (pays current with the bank) accelerate the buyer's path but don't satisfy injection.
Working capital component
Build $50K–$300K of working capital into the loan request, separate from the acquisition piece. Most first-time buyers underestimate Q1 cash needs and end up taking expensive short-term capital 90 days in.
DSCR requirements
SBA wants 1.25x DSCR on adjusted EBITDA. Add-back analysis (owner salary, non-recurring expenses, personal expenses run through the business) is where deals get built or killed. Have a CPA prepare a Quality of Earnings before underwriting starts.
Conventional alternative
For larger deals or buyers with strong personal balance sheets, conventional bank financing skips the SBA fee (3.75% guarantee fee on most 7(a) loans) but requires more equity and stronger collateral.
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