I Want to Acquire Another Business — What's the Best Route?

Buying an existing business is usually cheaper than building the same revenue from scratch — and in the US, most small acquisitions under $5 million are financed the same way: an SBA 7(a) loan, a seller note, and a slice of the buyer's own cash. Here is how the stack works in 2026, what changed in the rules this year, and when a different route fits better.

The standard structure

A typical $1,000,000 acquisition is funded roughly like this:

So on a $1,000,000 purchase, expect to bring $100,000, of which up to $50,000 can be a standby seller note — meaning the seller receives nothing on it until the SBA loan is repaid.

What changed in the SBA rules

The acquisition rulebook tightened through 2025 and 2026. The points that affect buyers most:

• Debt service coverage of 1.25x is now the minimum for first-time acquisitions and owner buyouts, up from 1.15x. Expansions stay at 1.15x.
• Equity injection of 10% applies to start-ups and complete changes of ownership. Expansions and owner buyouts can qualify for a reduced or waived injection when liquidity is strong; first-time acquisitions cannot.
• Quality of Earnings reports are required on business purchases of $3 million or more, excluding real estate.
• Independent business valuations are required above $350,000.
• Seller involvement after closing is capped: a seller can consult for up to 24 months but cannot stay on as a key employee.
• Partial buyouts have their own rules — a buyer with less than 24 months at the business cannot take 50% or more and cannot become the largest owner.
• Ownership eligibility now requires all direct and indirect owners to be US citizens or nationals residing in the US. This has been subject to legal challenge, so confirm current status with your lender.
• Combined limits rose to $10 million across 7(a) and 504 together, with $5 million the maximum in each programme.

The other routes

Seller financing as the main instrument

Some sellers will carry 30–60% of the price over three to seven years. It is fast, flexible and avoids an underwriting process, but sellers usually want a higher price or security over the assets. Works best for smaller deals and for buyers the seller already knows.

Conventional acquisition loan

Banks will lend against a business with hard assets, long history and strong cash flow, often at better rates than SBA and without guaranty fees. Expect a larger down payment — commonly 20–30% — and tighter covenants.

Asset-based or hybrid financing

If the target has substantial receivables, inventory or equipment, part of the price can be funded by a facility secured on those assets, with an SBA loan or seller note covering the goodwill portion.

Search funds and investor equity

Bringing an equity partner reduces debt pressure but gives up ownership. Common where the buyer is strong operationally but light on capital.

Earn-outs

Part of the price is paid from future performance. Useful when buyer and seller disagree on value, and often combined with SBA financing — though the SBA has specific rules about how earn-outs are structured, so raise it early.

What underwriters look at in the target

• Three years of tax returns and financials that reconcile with the bank statements.
• Cash flow after your salary and the new debt payment — this is where the 1.25x coverage is tested.
• Customer concentration. One customer at 40% of revenue is a problem.
• Transferability. Will revenue survive the owner leaving? Contracts, staff and systems matter more than goodwill.
• Your experience. Industry background is close to mandatory for first-time acquisitions.

A realistic timeline

1. Weeks 1–2: letter of intent signed, pre-qualification with a lender using the target's financials.
2. Weeks 3–6: due diligence, valuation, Quality of Earnings if required, formal application.
3. Weeks 6–10: underwriting, SBA authorization, closing conditions.
4. Weeks 10–14: closing and funding. Allow longer if real estate is involved.

Costs to budget for

Beyond the down payment: the SBA guaranty fee (3% to 3.75% of the guaranteed portion on larger loans in FY2027, with waivers for some manufacturers, rural and food supply chain businesses), lender packaging and closing fees, valuation, legal, and Quality of Earnings where applicable. Total upfront cost on a typical deal lands around 3–4% of the loan amount.

Frequently asked questions

Can I buy a business with no money down?

Not under current SBA rules for a first-time acquisition — 10% equity is required, and at most half of that can be a standby seller note. Fully seller-financed deals outside the SBA programme exist but are rarer and usually priced accordingly.

How much can I borrow?

Up to $5 million per programme, or $10 million combined across 7(a) and 504. The practical limit is cash flow: the business must cover the new payment at 1.25x after a reasonable owner salary.

Can I use an SBA loan to buy a share of a business?

Yes, partial changes of ownership are allowed, but the rules on who can buy what share changed in 2026. Expect scrutiny if you have been with the business less than two years.

Does the seller have to guarantee anything?

If the seller keeps a stake below 20%, they generally must guarantee the loan for at least two years after final disbursement.

SBA rules change frequently. Figures reflect guidance in effect as of October 2026 — confirm specifics with your lender before relying on them.

What to verify before you commit

Lenders will check these, and so should you — ideally before you spend money on diligence:

• Add-backs. Sellers often present "adjusted EBITDA" with personal expenses added back. Only defensible, documented add-backs survive underwriting, and your loan is sized on what survives.
• Working capital. Does the purchase price include enough receivables and inventory to run the business on day one, or will you need extra capital immediately?
• Key staff and contracts. Change-of-control clauses can end your biggest customer contract at closing.
• Deferred maintenance. Equipment or premises that need work in year one is a second funding requirement wearing a disguise.
• Owner dependence. If the seller is the main salesperson, model what happens when they leave after the consulting window.

Build the working capital into the loan

One of the 7(a) programme's advantages is that a single loan can cover the purchase price, closing costs and a working capital tranche. Ask for it upfront. Going back for additional funding three months after closing is far harder than including it in the original request, and it is the most common avoidable mistake first-time buyers make.