SBA 7(a) loans for buying a business
An SBA 7(a) loan is a loan made by an approved lender and partially guaranteed by the U.S. Small Business Administration, and it is one of the most common ways to finance the purchase of a small business.
Key takeaways
- The lender makes the loan; the SBA guarantees a portion of it.
- The maximum 7(a) loan amount is $5 million.
- Buyers are usually expected to put in some of their own equity, often around 10 percent of the project cost.
- Owners of 20 percent or more of the business are typically required to give personal guarantees.
- 'SBA eligible' on a listing is the poster's view, not an approval.
What the SBA actually does
The SBA does not lend the money for a 7(a) loan. It guarantees a portion of a loan made by a participating bank or lender, which lowers the lender's risk and lets them finance acquisitions they might otherwise decline.
What lenders look at
Lenders assess the target's historical cash flow and whether it can service the debt, the buyer's industry experience and credit, the equity the buyer contributes, and the collateral available. Lenders and SBA rules change over time, so confirm current requirements with a lender before you structure a deal.
What 'SBA eligible' means on a listing
Brokers label listings SBA eligible when the business looks like it fits the program, for example a U.S.-based operating company that is not in an ineligible category. The final decision belongs to the lender, so treat the label as a starting point.
Frequently asked questions
The maximum 7(a) loan amount is $5 million. Larger acquisitions combine SBA debt with other debt, seller financing or equity.
Yes, seller notes are commonly used alongside SBA loans. How much of a seller note can count toward the buyer's required equity depends on the lender and the current SBA rules, so ask the lender early.
Generally yes. Lenders expect an equity injection from the buyer, commonly around 10 percent of the total project cost, though the required amount depends on the deal and the lender.
Last reviewed . General information, not legal, tax or financial advice.