Small Business Administration (SBA) loans are often the most accessible and favorable financing option for business acquisitions. This guide explains everything you need to know about using SBA loans to purchase a business.
SBA loans are government-backed loans designed to help small businesses access financing when they might not qualify for traditional bank loans. The SBA doesn't directly lend money; instead, it guarantees a portion of the loan, reducing the risk for lenders and making them more willing to approve loans for small business owners.
The most common loan program for business acquisitions. These loans can be used for purchasing an existing business, real estate, equipment, and working capital.
These loans are primarily for purchasing real estate and major equipment. If the business acquisition includes significant real estate, this might be an option.
To qualify for an SBA loan for business acquisition, you'll need to meet these criteria:
Not all banks offer SBA loans, so start by finding one that specializes in them.
Submit your personal financial information to get an idea of how much you might qualify for.
The lender will require a professional business valuation to ensure the purchase price is fair.
Thoroughly investigate the business you're planning to purchase.
Submit your complete loan package with all required documentation.
The lender reviews your application (typically takes 30-90 days).
If approved, you'll sign final paperwork and receive funds.
Be prepared to provide these documents:
Typical SBA loan terms for business acquisitions:
Prime rate + 2.25% to 4.75%
10 years for business acquisitions (up to 25 years if real estate is included)
10-20% for most acquisitions
2-3.75% of the guaranteed portion
Pay down existing debt, correct any errors on your credit report, and avoid new credit inquiries before applying.
Show how you'll maintain or improve the business with realistic projections and clear strategies.
Highlight your relevant experience and knowledge in the industry you're buying into.
Show you have funds beyond the down payment to handle unexpected expenses or slow periods.
Choose a lender who specializes in business acquisitions and has a high SBA loan approval rate.
If an SBA loan doesn't work for your situation, consider these alternatives:
The seller accepts payments over time
May require higher down payments but fewer restrictions
Using business assets as collateral
Specifically for the equipment portion of the business
Rollover as Business Startup: Using retirement funds without penalties
Bringing in investors who provide capital for ownership stakes
Our team of business acquisition specialists can guide you through the SBA loan process and help maximize your chances of approval.
Business Financing Specialists
Disclaimer: This article is for informational purposes only and does not constitute financial advice. SBA loan programs, terms, and requirements may change. Always consult with a qualified financial advisor before making business financing decisions.
