Situation
I want to buy a competitor or open another location
The largest financing most owners ever arrange, with the most ways to get the structure wrong. What lenders look at and what kills these deals.
For an acquisition, SBA 7(a) is usually the centre of the structure, typically combined with a seller note and your own equity. Expect months, not weeks. The thing that most often kills these deals is not the rate — it is the equity injection and whether the target's books support the price.
Buying versus opening
These feel similar and finance very differently.
- Buying an existing business comes with historical financials, which a lender can underwrite. That makes it considerably easier to finance than it sounds.
- Opening a new location has no history, so it is underwritten as an expansion of your existing business — which means your current numbers carry the whole weight.
If you have a choice, buying is usually the more financeable route, which surprises people who assume the opposite.
How the structure usually looks
| Piece | Typical role |
|---|---|
| SBA 7(a) loan | The core of most small acquisitions. Up to $5 million, long amortization, and the program is explicitly built for changes of ownership. |
| Seller financing | A note from the seller for part of the price. Often required, and sometimes placed on full standby so it counts toward your equity. |
| Your equity injection | Your own money. The piece that most often stops a deal. |
| SBA 504 | Where real estate is part of the purchase, often alongside a 7(a) for the business itself. |
| A line of credit | Arranged separately for working capital after closing. Do not spend your last cash on the purchase. |
The equity injection, which is where deals die
The SBA's current rulebook requires a start-up — defined as a business operating for one year or less — to inject at least 10% of total project cost. Acquisition rules have their own requirements, and lenders frequently want more than the minimum.
What counts as equity is narrower than owners expect. Broadly: cash that is not borrowed, a gift, a personal loan repayable from a source other than the business, certain assets, and debt placed on full standby — no principal or interest for the life of the SBA loan. Borrowed money that the business has to repay generally does not count.
What the lender will examine in the target
- Three years of tax returns and financials, and whether they agree with each other.
- Debt service coverage after the purchase — the acquired business has to service the new debt, not just the price.
- Customer concentration. A business where one client is 40% of revenue is a different risk, and lenders price it that way.
- Why the seller is selling, and whether the business survives their departure.
- A business valuation, which the SBA requires on changes of ownership and which frequently comes in below the agreed price.
- Whether you can run it — relevant industry experience carries real weight here.
Before you make an offer
- Get the target's three years of returns, not just a profit and loss the seller prepared.
- Work out debt service coverage at the price you are contemplating. If it does not clear the threshold, the deal does not finance at that price.
- Establish what you can actually inject, in a form that counts.
- Talk to an SBA lender before you sign anything, including the letter of intent.
- Budget for post-closing working capital separately.
Our lender rankings for large loans show which lenders' typical deal is actually this size — several of the highest-volume SBA lenders in the country do almost nothing above $100,000, so starting with your own bank can waste months.
Questions people actually ask
How much down payment do I need to buy a business?
Plan on a meaningful injection of your own money, and expect lenders to want more than the minimum. What counts is narrower than owners expect -- borrowed money the business must repay generally does not qualify, while a seller note on full standby often does.
Can I buy a business with no money down?
Very rarely, and the structures that claim to usually rely on seller financing on full standby plus unusual circumstances. Treat any marketing promising it as a reason for more scrutiny, not less.
How long does acquisition financing take?
Months rather than weeks. Valuation, environmental and appraisal work where property is involved, and full underwriting all take real time. Build the timeline into your purchase agreement rather than discovering it afterwards.