What the SBA loan actually is
The Small Business Administration does not lend you money. It guarantees a large portion of a loan made by a regular bank, which makes banks willing to lend against a business's cash flow instead of hard collateral. For acquisitions, the program is the 7(a) loan: up to $5 million, repaid over up to 10 years for a business purchase (25 years when real estate is included).
How much cash you actually need
The minimum equity injection is 10% of total project cost: the purchase price plus closing costs and working capital. It cannot be reduced for an initial acquisition, but up to half of it can come from a seller note on full standby, meaning the seller takes no principal or interest payments for the life of the SBA loan.
Illustrative, on $1,000,000 total project cost. Lenders can require more than the minimum. Confirm current rules with your lender.
What lenders look at
The business's cash flow. Lenders want cash flow to cover annual loan payments at least 1.25 times, using the financial reporting required for the transaction, not tax returns alone. Your credit and finances. A solid score and a clean personal financial statement matter even though the business repays the loan. Your ability to run it. Relevant experience helps; a strong team already in place also counts.
Under Appendix 15, an initial acquisition or business expansion with a purchase price of $3 million or more requires a Quality of Earnings report before equity or financing adjustments. Confirm the applicable reporting requirements early with your lender.
The timeline
Expect 60 to 90 days from a signed letter of intent to closing. The biggest delays are paperwork. Buyers who gather these early close weeks faster:
Choosing an acquisition lender
Many banks rarely do acquisition loans. Before you share a deal, ask three questions:
- How many business acquisition loans did you close last year?
- Are you an SBA Preferred Lender, so you can approve in house?
- Do you lend in my target industry and location, and at what deal size?
For variable-rate 7(a) loans over $350,000, the maximum spread is generally the applicable base rate plus 3 percentage points. This is a ceiling, not a guaranteed quote. Confirm the current base rate and your lender's terms before underwriting a deal.
Common mistakes
- Talking to the wrong bank. Ask how many acquisition loans they closed last year.
- Forgetting working capital. It is part of total project cost, and many loans can include it.
- Assuming any seller note counts. Only a note on full standby for the life of the SBA loan counts toward your equity.
FAQ
Can I buy a business with no money down using an SBA loan?
An initial acquisition requires 10% equity on total project cost. Limited sources, including qualifying full-standby seller debt, can cover up to half in aggregate. The remainder may include documented cash, gifts or qualifying personal borrowing repaid outside the business, subject to lender approval.
Can a gift from family count toward the injection?
Yes. Under SOP 50 10 8.1, cash, gifts and personal loans repaid from outside the business are unlimited sources of equity. Expect the lender to ask for a signed gift letter and proof of the transfer.
How long does an SBA acquisition loan take?
Typically 60 to 90 days from signed LOI to closing.
Source: SBA SOP 50 10 8.1, Appendix 15. Limited equity sources share one aggregate cap of half the required injection.
Florida licensed business broker. 14+ years buying and selling businesses, 1,000+ evaluated, $100M+ in deals closed and advised on.
About Michael →Educational content, not financial advice. Loan terms and SBA rules change; confirm current requirements with a lender.