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Financing

SBA financing explained for buyers and sellers

A lot of small business purchases are paid for with an SBA 7(a) loan. The Small Business Administration doesn't lend the money. A bank or other approved lender does, and the SBA guarantees part of the loan. That guarantee lets lenders finance deals they otherwise wouldn't, especially when most of what's being bought is the business's cash flow rather than buildings or equipment.

If you're buying a business, the SBA's rules shape how much cash you need and how the deal is structured. If you're selling, they shape what a buyer can offer you. Here's how the main pieces fit together today.

The rules changed twice recently

The SBA's lending rules live in a document called the Standard Operating Procedure, or SOP. A major revision, SOP 50 10 8, took effect June 1, 2025, and tightened several rules for buying a business. An update, SOP 50 10 8.1, took effect October 1, 2026, and applies to loans that receive an SBA loan number on or after that date. If a deal was already in process before then, ask your lender which version applies.

The buyer's down payment

The SBA calls the buyer's own money in the deal an equity injection. When a buyer purchases 100% of a business, the minimum is 10% of the total project cost. Total project cost means more than the purchase price. It usually includes working capital, closing costs, and fees.

For example, if the purchase price plus working capital and closing costs comes to $1 million, the buyer needs to put in at least $100,000. Lenders can and often do ask for more than the minimum, depending on the buyer's experience and the business's history.

Lenders also want to see where that money came from. Savings you can trace through bank statements are the simplest. Gifts and outside investors are possible but come with extra paperwork and rules, so raise them with your lender early.

Where a seller note fits

A seller note means the seller finances part of the price and the buyer pays them back over time. Under the current rules, a seller note can count toward the buyer's equity injection, but only up to half of the required amount, and only if it's on full standby. Full standby means the seller receives no principal and no interest payments for the entire life of the SBA loan.

Using the example above, a seller note could cover up to $50,000 of the $100,000 minimum. The buyer still needs at least $50,000 of their own cash. And the seller would wait the full term of the SBA loan, commonly 10 years on a business purchase without real estate, before receiving a payment on that note.

Seller notes that don't count toward the equity injection can be structured differently, but the lender sets the terms and may still require a standby period. Sellers should know exactly when they'll be paid before agreeing to carry a note.

What the structure rules out

In an SBA-financed purchase, the price generally has to be settled at closing. Earnouts, where part of the price depends on how the business performs after the sale, don't fit the program, and a seller note on standby can't be swapped out for an earnout or holdback.

The seller's role after closing is limited too. A seller can help with the transition as a consultant for a set period but generally can't stay on as an employee after selling the whole business. Ask your lender how long that period can run under the current rules.

What lenders look at

The biggest question is whether the business's cash flow can cover the loan payments with room to spare. Lenders measure this with debt service coverage: cash flow available for debt payments divided by the payments themselves. Many lenders look for at least 1.25 times coverage on an acquisition.

Lenders also look at the buyer's management experience and credit, and anyone owning 20% or more of the borrower generally signs a personal guarantee. A 2026 SBA rule also added citizenship and residency requirements for owners, so buyers with partners or investors should confirm everyone qualifies before applying.

Why sellers should care

If your buyer pool includes people who'll use SBA financing, the lender's math sets a ceiling on your price. The lender underwrites from your tax returns and records, so a price that the cash flow can't support usually won't get financed, no matter what the buyer is willing to pay. Knowing that number before you go to market saves months.

Lenders apply the same rules in different ways, and the details change. We help buyers and sellers figure out how a deal is likely to be underwritten and put together the package a lender expects. If you're weighing a purchase or a sale, we're glad to walk through it with you.