Business acquisition loans and how to buy a business

What is a business acquisition loan?

A business acquisition loan is financing used to buy an existing business or a stake in one, repaid from the cash flow of the business purchased. Often, it’s an SBA 7(a) loan or bank term loan combined with a down payment and a seller-financed note. 

So how does it work? The lender looks at the business’s past cash flow, plus your experience and how much money you’re putting into the deal. The business’s assets — often along with a personal guarantee — secure the loan. 

Business acquisition loan options compared

Buyers may have a number of options to consider. We’ll discuss each of these loan types in more detail in this article.

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SBA 7(a) loans: Banks and other lenders make SBA loans, and the SBA guarantees part of them. We’ll go into more detail in the section about SBA loans.

Conventional bank term loans: Banks often offer the lowest rates and good terms, but they usually want strong credit, established revenue, and detailed financials. Credit scores of at least 720 often make it easier to get approved and can lead to better rates, while credit scores in the mid-600s or lower can make it harder to get approved. Read more about business term loans. 

Seller financing: The seller lets you pay part of the price over time, with interest. Banks can view that note as part of your equity. We’ll go into more detail in the seller financing section below. 

Online and alternative lenders: Online lenders can often fund within hours or a couple of days after approval. But costs can be high, and these loans often offer short-term financing that mean payments can significantly affect cash flow. 

Rollover for business startups (ROBS): A ROBS arrangement lets prospective owners use retirement funds to pay for start-up costs. The plan buys stock in a new C corporation. SBA lenders must confirm the plan meets IRS and Department of Labor requirements. If you’re considering this route, work with an experienced advisor. 

Equipment and commercial real estate financing: If the business owns equipment or real estate, you may finance that part separately. SBA 504 covers real estate and equipment, but not intangible assets like goodwill. With an SBA 7(a) acquisition, real estate can be a separate loan or blended, and the real estate loan can be as long as 25 years. Learn more about commercial real estate loans. 

Business lines of credit: A line of credit can cover working capital once you’ve taken over the business. Once approved, you borrow up to a limit, repay, and borrow again. Learn more about business lines of credit. 

Buying out a business partner: Buying out a partner may involve the types of loans discussed in this article. With an SBA loan, a partner buyout is treated as an owner buyout. It needs the same 1.25 coverage ratio as an acquisition, but the lender can reduce or waive the 10% equity injection if the business has enough liquidity and working capital afterward. To qualify as an existing owner buyout, the buyers generally must have been active in the business for at least 24 consecutive months. 

Here are some financing options to consider. These come from Nav’s small business financing marketplace:

Using an SBA loan to buy a business

The SBA doesn’t make a loan to acquire a business. Instead, it guarantees a portion of the SBA loans that banks and other lenders make. The SBA sets minimum requirements and lenders may have their own requirements on top of those. SBA 7(a) loans go up to $5 million, and the money can fund a complete or partial change of ownership. 

To understand how these loans work, see Nav’s guides to SBA 7(a) loans and SBA loan requirements. 

The SBA’s rules for buying a business changed on Oct. 1, 2026, and they apply to loans that receive an SBA loan number on or after that date. Here are the main requirements:

Your equity injection: For change of ownership transactions, buyers need an equity injection of at least 10% of the total project cost. For an outright purchase, the lender can’t reduce or waive that. A seller note can count toward it, but only if it’s on full standby, meaning no principal or interest payments for the whole SBA loan term. 

Standby notes, other standby debt, and small outside investors together can cover at most half of the required injection, so a standby seller note can cover up to 5% of the project cost. The rest comes from sources (like cash) that you haven’t borrowed yet. 

For business expansion (where one operating business fully buys another) or owner buyouts, the equity injection requirement may be reduced or waived if the lender determines there is enough working capital and liquidity to sustain the operation.  

Cash flow:Most acquisitions need a debt service coverage ratio (DSCR) of at least 1.25 (1.15 for business expansions), based on the last fiscal year or a two-year average. That ratio compares the business’s earnings to its debt payments, and a 1.25 indicates a 25% cushion. Lenders must look at projections but can’t rely solely on them.

Valuation and quality of earnings: The lender must get a business valuation from an independent, accredited source, though it can do its own at $350,000 or less as long as the seller and buyer aren’t closely related. On purchases of $3 million or more (not including owner buyouts), it also has to order a quality of earnings report, and independent review of the seller’s financial records. 

The seller after the sale: In most acquisitions, the seller can’t stay on as an officer, director, stockholder, or employee, but you can hire them as a consultant for up to 24 months. 

Term: Loans for buying a business can’t amortize over more than 10 years, except the real estate portion, which can go up to 25 years. Special purpose properties may also have longer amortization periods. SBA 7(a) loans also can’t have balloon payments. 

Smaller deals: 7(a) Small loans (up to $350,00) and SBA Express loans (up to $500,000) can fund acquisitions too within SBA guidelines. 

Seller financing: how it works and how to ask for it

Seller financing is a loan from the seller for part of the purchase price. It’s typically a minority share of the price, repaid over several years at a negotiated rate, sometimes with a balloon payment.

In the International Business Brokers Association (IBBA) data for the second quarter of 2026, seller financing made up 11% of deal value in businesses selling for under $500,000. Lenders may welcome it, since banks can treat it as your equity and SBA lenders can count as a standby seller note toward your down payment.

Why sellers say yes

Research by Morgan & Westfield, a business brokerage, has found that businesses sold with seller financing may sell easier and for 20 to 30% more than all-cash sales. Sellers may also benefit by deferring taxes and earning interest. 

What you’ll negotiate

You’ll negotiate the amount, rate, term, standby period, and security. Morgan & Westfield, reports rates of 6% to 8%, notes terms of three to seven years (averaging five), and buyer down payments averaging 50%. BizBuySell cites 8% to 10% over five to seven years and suggests sellers ask for at least a third down. Sellers often take a lien on the business’s assets and want to review financial statements regularly. 

For SBA loans, the seller note can’t count as more than half of the required 10% equity. A seller note that isn’t on full standby counts as debt in the coverage test, and total debt can’t exceed the business’s valuation.

The earnout

An earnout is part of the price that’s paid only if the business hits the targets after closing. They’re rare in small deals, with only about 1% of deals for businesses under $500,000 including them, according to IBBA’s second quarter 2026 data. 

If you’re using an SBA loan, seller earnouts are prohibited. A buyer rebate based on performance is allowed, but the money must go toward paying down the loan. 

Buyer expectations vs seller willingness

According to the BizBuySell Insight Report, 90% of buyers expected seller financing to be part of their strategy, but only 29% of owners planned to offer it. Almost half of owners said they wouldn’t, and 23% were undecided. IBBA’s survey of brokers and advisors on completed deals found that seller financing made up under 10% of most deals in the second quarter of 2026. 

If a seller does offer financing, treat it as you would any other loan. You’ll want to show them why you are a good risk, and demonstrate how you’ll be able to pay back the loan.

How much can you borrow to buy a business?

Lenders size an acquisition loan from the businesses’ cash flow, not your income. The amount you can borrow is what the business can repay after paying a salary, at the lender’s required coverage ratio, within program caps. 

What it costs to buy a business

BizBuySell reports the median sale price was $350,000 in the third quarter of 2026. For businesses under $1 million, the median price was $250,000, with median cash flow of $123,000. Prices depend on the industry, revenue, cash flow, and other factors. 

How much you’ll put down

Down payments typically run 10% to 30%, depending on your credit, the loan type, and the amount. The SBA’s minimum equity injection is 10% when buying a business outright. On a $350,000 sale that’s $35,000 to $105,000. 

Example: Say you’re buying a business for $350,000, and the project has no other costs. A 10% equity injection is $35,000. A full-standby seller note can cover up to half of that, or $17,500, and your down payment covers the other $17,500. The lender finances the remaining $315,000. Closing costs, working capital, and valuation fees can raise the project cost, and the 10% rises with that. 

Now check that the business can afford the debt. If it has $100,000 a year available for debt payments and the lender requires a 1.25 coverage ratio, yearly payments on all acquisition debt can’t top $80,000. Seller debt that isn’t on standby counts toward that total. This is just an illustrative example. 

How to qualify for and get a business acquisition loan

How hard is it to get a business acquisition loan? It can be easier to get than a startup loan because the business has a track record, but harder than a working-capital loan because the lender underwrites two parties—you and the business. 

SBA loans are usually harder to get than online loans, but not harder than traditional bank loans. 

Here’s what lenders typically check:

Credit: Lenders may review personal credit, check business credit scores, or both. Lenders may require personal credit scores of at least 650 to 680 or more. 

Business experience: Lenders will document the management team and industry experience. 

Down payment source: Unborrowed cash, gifts, or a personal loan you can repay without the business’s cash flow count in full, but sweat equity doesn’t. 

The target’s financials: Profit and loss statements, balance sheets, and tax returns. (The lender will check IRS transcripts.) The lender will also require a personal financial statement of all guarantors of the loan (except supplemental guarantors).  

A business plan with projections: While a business plan can be helpful, lenders can’t rely on projections solely to meet the coverage test. 

Collateral and guarantees: For SBA loans above $50,000, lenders must take available collateral, and owners of 20% or more generally sign personal guarantees. 

Ownership: Since March 2, 2026, SBA loans require every owner to be a U.S. citizen or U.S. national living in the U.S., and green card holders no longer qualify. 

Expect the process to take time. SBA loans often take at least a month, and more often a few.

How to buy a business in 8 steps

1. Define what you need and can afford. Decide on the type and size of business, your budget, and the experience you bring. Know your credit and how much cash you can put down. SBA loans require at least 10%.
2. Search. You can browse listing marketplaces, such as BizBuySell, work with a broker, or tap industry contacts. In BizBuySell’s third quarter 2026 survey, 31% of buyers said finding a quality business was what held them back, ahead of financing at 15%.
3. Evaluate and value the business. Ask for bank statements, financial statements, tax returns, and have your advisors review them. BizBuySell puts the average cash flow multiple of businesses under $1 million at 2.30x in the third quarter of 2026. If you get an SBA loan of more than $250,000, the lender orders its own valuation. See how to value a small business. 
4. Sign a letter of intent (LOI). An LOI lays out the price, payment terms, and major conditions, and it’s typically not binding. 
5. Run due diligence. Plan on at least 30 to 60 days to review financials, contracts, leases, licenses, customers and vendors, operations, and employees. A lender’s quality of earnings review also tests customer concentration and how sustainable revenue is. It’s worth bringing an experienced advisor on board. 
6. Search for financing. Don’t wait until you’re under contract to start looking at financing options. Loans take time, and if you can give yourself time to shop around, you have a better chance of finding better financing. 
7. Negotiate the purchase agreement. Decide whether you’re buying assets or stock. Buyers often prefer asset deals for liability control and a tax step-up, and sellers often prefer stock deals for tax reasons. In an asset deal, both sides allocate the price among asset classes and report it on IRS Form 8594. SBA lenders treat an asset purchase as a change of ownership when you take all or substantially all of the assets and continue operations. Learn more in Nav’s guide to buying an existing LLC.  
8. Close and transition. BizBuySell reports that closing typically takes 90 to 120 days. The seller may agree to stay on in some capacity afterward. Under SBA rules, the seller can stay on as a consultant for up to 24 months. 

How long does it take to buy a business? BizBuySell says the search can take six months to a year or two, followed by about 90 to 120 days to close once under contract. The median sale for businesses in its marketplace took 170 days to close in 2025, though it varied by sector. 

How to buy a business with little money down

Truly no-money-down purchases are not common but they do happen. If you’re using an SBA loan to buy a business outright, the lender can’t waive the 10% equity injection. But the capital stack can shrink the cash you bring:

• A seller note on full standby, which can cover up to half of the required equity
• An SBA loan with the minimum 10% equity injection
• Partner equity from investors who own less than 20% and don’t control the business, which counts toward the same half limit
• A rollover of retirement funds, though the SBA warns of plan disqualification and adverse tax consequences if the plan isn’t run properly
• An earnout, which defers part of the price, but only outside SBA-financed deals because seller earnouts are prohibited there
• Buying assets rather than the whole company, which can limit the liabilities you take on, though SBA applies the same change-of-ownership rules if you buy substantially all the assets and continue operations

A down payment helps show a commitment to the success of the business and most lenders, including sellers, will require one. 

What to expect after the purchase

Whatever business you buy, expect a transition period while you learn its strengths and weaknesses. Sellers often train the buyer for two to four weeks and then phase out over 30-60 days, and the SBA allows the seller to consult for up to 24 months. If the business has employees or contractors, you and they will both need to adjust, so plan how you’ll keep key people and customers.   

Expect surprises, too. You may face costs that didn’t show up in due diligence, so dig into operations and financials for ways to improve cash flow. 

The bottom line

Acquisition financing is often a stack, not necessarily a single loan. The business you’re buying qualifies you as much as your own file does. The buying process and the financing process will overlap, so start talking to lenders early on. You can compare options in Nav’s business loan marketplace.  

Frequently asked questions