Using an SBA Loan to Buy a Business: Step-by-Step Guide

Acquiring an existing business is one of the most capital-efficient ways to become an entrepreneur or grow through acquisition. Instead of building revenue from scratch, you're buying proven cash flow, established customers, and a trained workforce.

The SBA 7(a) loan is the single most common financing tool for business acquisitions. It allows buyers to finance up to 90% of the purchase price — far more leverage than most conventional financing — with repayment terms up to 10 years.

Why SBA Loans Are Ideal for Business Acquisitions

  • Low down payment: 10% is the standard SBA requirement for acquisition loans (some deals require up to 20% depending on seller note structure)
  • Long repayment: Up to 10 years gives you manageable payments during the transition period
  • Up to $5M: Covers most small business acquisitions
  • All-in financing: Can include purchase price, working capital, and transition expenses in a single loan

Step-by-Step SBA Acquisition Loan Process

Step 1: Identify the Business and Negotiate a Letter of Intent

Before approaching any lender, you need a target business and a signed Letter of Intent (LOI) outlining the purchase price and basic deal terms. The LOI isn't a binding commitment to close, but it signals serious intent and gives lenders something concrete to underwrite.

Step 2: Engage an SBA Lender Early

Don't wait until you have a fully negotiated purchase agreement to talk to lenders. Engage SBA lenders during or immediately after the LOI stage. Early engagement lets you understand financing feasibility before investing significant time in due diligence.

Lenders will want to review the target business's financials at this stage — typically 3 years of tax returns and recent interim financials.

Step 3: Conduct Due Diligence

While the lender begins underwriting, you're conducting business due diligence:

  • Verify financial statements match tax returns
  • Review customer concentration risk (is 40% of revenue from one customer?)
  • Assess employee key-person risk
  • Review lease terms, equipment condition, and outstanding liabilities
  • Evaluate competitive position and market dynamics

Step 4: Negotiate the Purchase Agreement

Once due diligence confirms the business is what it appears to be, negotiate and execute a definitive Purchase Agreement. The Purchase Agreement replaces the LOI and becomes the binding document.

SBA lenders require the Purchase Agreement to proceed to final approval.

Step 5: Complete Lender Underwriting

With the Purchase Agreement in hand, lenders complete their underwriting. Key documents:

  • 3 years of business tax returns (target business)
  • 3 years of personal tax returns (buyer)
  • Year-to-date financials for target business
  • Personal financial statement
  • Business plan (particularly important for first-time buyers — see what lenders look for in an SBA business plan)
  • Business valuation (required by SBA)

Step 6: SBA Authorization

For non-Preferred Lenders, the loan package goes to the SBA for review and authorization. This step adds 2–4 weeks. Preferred Lenders (PLP status) have authority to approve without SBA submission, compressing the timeline. Not every application reaches this stage — if your loan is declined before or during underwriting, see our guide on what to do if your SBA loan is denied for next steps.

Step 7: Closing

Closing involves the lender, buyer, seller, and typically an attorney. The SBA loan funds, the seller receives proceeds, and the buyer takes ownership. For a detailed walkthrough of what happens at this stage, refer to our SBA loan closing process guide.

Key Considerations for Acquisition Loans

Seller notes: SBA sometimes requires sellers to carry a note (typically 10–15% of purchase price) to demonstrate confidence in the business and ensure alignment. The seller note is often on standby for 2 years (no payments) before the buyer begins repaying it.

Business valuation: The SBA requires a business valuation from a qualified appraiser for loans over $250,000. The loan can't exceed the appraised value.

DSCR requirements: The business must generate sufficient cash flow to service the new debt. Most SBA lenders want DSCR of 1.15–1.25x based on trailing 12-month financials. If the target business's cash flow falls short of this threshold, your application is at high risk of denial — something worth understanding before you get deep into the process, as we detail in our breakdown of common SBA loan denial reasons.

Goodwill: SBA loans can finance goodwill (the premium paid above tangible asset value), which is a significant advantage over conventional financing.

Timeline for SBA Acquisition Loans

  • LOI to Purchase Agreement: 2–6 weeks (due diligence period)
  • Lender underwriting and SBA authorization: 30–60 days
  • Closing: 1–2 weeks after authorization
  • Total from LOI to close: 60–120 days is typical

Indymae's Acquisition Financing Expertise

Indymae has structured SBA acquisition loans across a wide range of industries and deal sizes, including businesses seeking SBA loans in Florida and beyond. We know which SBA lenders specialize in acquisitions, what documentation is needed, and how to structure deals that get approved. If you're buying a business, connect with our team early in the process.