SBA Loans for Business Purchase: Complete Guide

An SBA 7(a) loan is a government-guaranteed loan program designed to help buyers purchase existing businesses. The Small Business Administration guarantees 75-85% of the loan, reducing lender risk and making financing more accessible. Loans range up to $5 million with 25-year terms and interest rates of 10-13.5%, requiring 10% buyer equity injection and 690+ credit score.

Most SBA lenders require a minimum credit score of 690 for business acquisition loans. Some lenders may consider scores as low as 680 with compensating factors like significant down payment, strong industry experience, or excellent business financials. Scores above 720 significantly improve approval odds and may result in better terms.

SBA 7(a) loans for new ownership require a 10% equity injection (down payment). For partner buyouts with 24+ months ownership history, the requirement may be reduced. The down payment demonstrates buyer commitment and reduces lender risk. The equity injection must come from legitimate sources documented in your personal financial statement.

The SBA loan process typically takes 30-90 days from application to funding. Timeline breakdown: Document preparation (2-3 weeks), application submission and initial review (1 week), underwriting and due diligence (2-4 weeks), approval and commitment letter (1-2 weeks), and final closing (1-2 weeks). Complex transactions may take longer.

Canadian buyers can access similar financing through Business Development Bank of Canada (BDC) which offers acquisition loans with 10-25% down payment, provincial small business lending programs, credit union acquisition financing, and traditional bank commercial loans. BDC is the closest Canadian equivalent to SBA, offering government-backed financing for business purchases in BC, Alberta, and across Canada.

SBA 7(a) loans can finance most for-profit business purchases, but certain industries are ineligible including passive real estate investment, lending/investment businesses, gambling, speculation, and non-profit organizations. The business must be located in the United States, operate for profit, qualify as a small business under SBA size standards, and have exhausted other financing options.

The maximum SBA 7(a) loan amount is $5 million. The SBA guarantees 85% of loans up to $150,000 and 75% of loans above $150,000. For business purchases, lenders typically finance 85-90% of the purchase price, requiring 10-15% buyer equity. The loan amount depends on business valuation, cash flow capacity to service debt, and collateral available.

SBA acquisition loans require a debt-to-worth ratio of 9:1 or less, meaning total debt cannot exceed 9 times the buyer's net worth. For example, with $100,000 net worth, maximum acceptable debt is $900,000. This ensures buyers have sufficient equity cushion and aren't over-leveraged. Lenders calculate this using personal financial statements and existing liabilities.

Yes, combining SBA loans with seller financing is common and encouraged. Typical structure: 60-70% SBA loan, 10-20% seller financing, and 10-20% buyer equity. The seller note must be on full standby (no payments) during the SBA loan term or subordinated to the SBA lender. This combination reduces buyer's down payment while maintaining acceptable leverage ratios.

SBA doesn't require full collateralization, but lenders prefer sufficient collateral to secure the loan. Acceptable collateral includes business assets (equipment, inventory, accounts receivable), business real estate, and personal assets (home equity, investment accounts). Personal guarantees from owners with 20%+ stake are always required. Service businesses with mostly goodwill may struggle without additional collateral.