How to Finance Your Business Acquisition with an SBA 7(a) Loan 

If you want to buy an existing small business and are looking into financing options, a Small Business Administration (SBA) loan might be the ideal fit for you. These loans are backed by the SBA, a part of the U.S. federal government that partners with lenders to help small businesses receive funding. 

The SBA reduces lender risk by guaranteeing the loans up to 85 percent, allowing lenders to take more chances on small businesses. Through SBA-backed loans, new small business owners can gain access to financing that they otherwise might not receive through conventional loans. 

What is an SBA 7(a) Loan and how can I use it to buy a business? 

The SBA 7(a) loan is the most popular type of loan backed by the U.S. Small Business Administration when they may not qualify for conventional bank loans. It’s a versatile, government-guaranteed small business loan that can be used for things like covering daily expenses to purchasing assets.  

A common use of the SBA 7(a) program is for the purchase of existing businesses, which the SBA categorizes as a change of ownership. This covers everything from acquiring a business’s assets to facilitating a partner buyout by allowing one partner to purchase another’s stake in equity. This helps simplify the acquisition process by bundling the purchase price, working capital and even real estate costs into a single loan package, which often requires a lower down payment than traditional financing.  

Borrowers can secure a maximum of $5 million under this loan program, offering significant capital for big business transactions. The term-lengths of an SBA 7(a) loan are designed for strong financial health, extending up to 10 years for a business acquisition or working capital, and up to 25 years if the purchase includes real estate. The combination of flexible use of funds and competitive rates makes the SBA 7(a) loan a powerful asset for entrepreneurs seeking the long-term financing necessary to scale an existing business.

Benefits of an SBA 7(a) Loan for a Business Acquisition

SBA 7(a) loans offer numerous advantages when compared with conventional loans. They are designed to be affordable for small businesses, and they can be easier to qualify for—which is ideal for small business owners. 

These loans offer competitive terms, typically with lower interest rates and fees than other types of loans. The loans typically do not have financial covenants or balloon payments associated with them. 

SBA 7(a) loans also offer large amounts, up to $5 million. They also offer long repayment terms—up to 10 years, and even up to 25 years if over half of the loan is allocated to real estate. A longer term means you will have a lower required monthly payment, which will open up your cash availability. That could free up money to reinvest in continuing to grow your business. 

The loans also offer flexible overhead requirements and are typically more flexible with equity and collateral requirements. Some collateral might be required for SBA 7(a) loans, but typically not as much as conventional business loans, and in some cases, none at all. These loans also require a lower down payment, and you might be able to finance up to 90 percent of the total costs of your business acquisition. 

What Types of Business Purchases Qualify?

Businesses must meet certain requirements stipulated by the SBA to qualify for an SBA loan. 

1. Cannot be a non-profit 
2. Must be considered a small business according to the SBA’s size requirements, which are detailed on the SBA’s website 
3. Must be in the U.S.
4. Must be creditworthy and can repay the loan  
5. The applicant must demonstrate that they cannot obtain the desired credit on reasonable terms from other non-government sources

 If you are looking to purchase a business franchise, you can use an SBA 7(a) loan to buy a franchise business if it meets the other requirements.  

What Do I Need to Apply for an SBA 7(a) Loan?

To demonstrate to the lender why your loan should be approved, you must: 

1. Show financial history of the business you wish to acquire 
2. Provide business plans and projections 
3. Detail your use of loan funds 
4. Prove repayment ability  
5. Provide business tax returns from the last three years 
6. Present a P&L statement, balance sheet and debt schedule  
7. Have a letter of intent to purchase the business

1. Credit history & business experience  
2. Equity injection (down payment)  
3. Personal tax returns 
4. Personal financial statement  

1. Tangible collateral 
2. Non-tangible collateral 
3. Personal assets  

How the Acquisition Process Works

1. Identify a business: This initial phase involves searching for suitable businesses, conducting research market positions, and determining if this opportunity meets your financial capacity. This can take anywhere from 1 to 6 months. 
2. Perform due diligence: This is the buyer’s deep-dive investigation into the company. It is important to look at their financials, operations, legal contracts and customer base. This often takes around 30 to 90 days.  
3. Submit a letter of intent: You will submit a formal, non-binding letter of intent that outlines the proposed purchase price, deal terms and specific conditions that must be met before closing. Signing the letter of intent usually grants the buyer a period of exclusivity to finalize due diligence and secure financing. The timeline for this process is around 1 to 2 weeks.  
4. Apply for an SBA 7(a) loan: Once the LOI is signed, the buyer formally submits the full, comprehensive loan package, including the LOI, all required business and personal financial documents, and the formal application (like SBA Form 1919), to a preferred SBA lender. The lender then moves the application into underwriting, where they verify all documents, perform appraisals, and assess repayment risk. This process can take 60 to 90 days from application submission to SBA review.  
5. Close loan: This final stage begins once the lender receives final SBA authorization and issues a commitment letter listing the details of the loan. Once all documents are signed, outstanding conditions are met, the funds are disbursed to the seller. This timeline is around 7 to 30 days from receiving commitment letter to funds being wired.  
6. Transition of ownership: Immediately following the closing, the buyer assumes legal and operational control of the business, often with the seller staying on for a negotiated, temporary consulting period (up to 12 months allowed by the SBA). This can take anywhere from 3 to 12 months, which would be the seller’s transition period.  
   
   

Finding the Right SBA Lender

You will need to find the right lender for your business acquisition loan. When looking for a lender who offers SBA loans, ideally you want to work with an SBA Preferred Lender, one who is part of the SBA’s Preferred Lender Program (PLP). 

A preferred lender like Live Oak Bank is able to get the capital you need quickly. Live Oak can approve your loan without going through the SBA first, which shortens the approval time. SBA loans through Live Oak are typically approved three to four weeks faster than with non-PLP lenders. 

Also check to ensure that the lender has significant experience helping small businesses secure SBA loans. Live Oak Bank has guided thousands of small businesses through the SBA loan process. Live Oak also offers deep industry knowledge through in-house teams that will guide you through the loan process efficiently to help you avoid costly mistakes. 

Look for a lender who specializes in small businesses and one who will continue to support you well beyond the loan approval. A lender can offer you support as your business grows and faces challenges. Through its Portfolio Management Team, Live Oak Bank offers service and know-how throughout the life of the loan. 

Be sure to find a lender who is just as invested in the future of your newly acquired small business as you are. Chat with a loan specialist today.