Buying a business can be a game-changing move, but financing such a purchase often poses a significant challenge. At Unbroker, we’ve seen many aspiring entrepreneurs successfully leverage SBA loans to acquire existing businesses.
Can you use an SBA loan to buy a business? Absolutely. These government-backed loans offer attractive terms and can be a powerful tool for business acquisition.
What Are SBA Loans for Business Acquisition?
Types of SBA Loans for Business Purchases
SBA loans provide a powerful tool for entrepreneurs who want to buy an existing business. These government-backed loans, offered through the Small Business Administration, make business acquisition more accessible with favorable terms and conditions.
The SBA 7(a) loan program stands out as the most popular option for buying a business. It offers loans up to $5 million with repayment terms extending to 25 years. For most 7(a) loan programs, SBA guarantees up to 85 percent of loans of $150,000 or less, and up to 75 percent of loans above $150,000. Another option is the CDC/504 loan program, which caters specifically to the purchase of fixed assets (such as real estate or equipment).
Advantages of SBA Loans for Business Acquisition
SBA loans offer several benefits over conventional bank loans. They typically feature lower interest rates ranging from 6.54% to 11.7% at banks. Down payments can be as low as 10%, which is significantly less than the 20-30% many traditional lenders require. This lower equity requirement allows buyers to keep more capital for business operations after the acquisition.
Eligibility Requirements for SBA Loans
To qualify for an SBA loan, you must meet specific criteria:
- Personal credit score of at least 680
- Industry experience or relevant management skills
- The business you plan to purchase must be for-profit and operate in the United States
- The target business should show profitability for at least the past two to three years
The SBA Loan Application Process
The SBA loan application process can be complex, but the benefits often outweigh the challenges. It’s important to start the process early, as approval can take 60 to 90 days. A solid business plan is essential for a successful application.
Preparing for the Next Steps
With an understanding of SBA loans and their requirements, you’re ready to move forward with your business acquisition plans. The next section will guide you through the steps to secure an SBA loan for your business purchase, including how to develop a comprehensive business plan and gather necessary financial documents.
How to Secure an SBA Loan for Your Business Purchase
Craft a Winning Business Plan
Your business plan forms the foundation of your SBA loan application. It must clearly outline your vision for the business you intend to purchase and your strategy for success. Include detailed financial projections for the next three to five years, demonstrating how you’ll repay the loan.
Gather Essential Financial Documents
Lenders will scrutinize your financial history, so prepare comprehensive documentation. You’ll need:
- Personal and business tax returns (past three years)
- Personal financial statements
- Business financial statements (balance sheets and profit & loss statements)
- A detailed list of all business debts
- Proof of business assets
Pro tip: Organize these documents in a digital format for easy sharing with potential lenders. This level of preparation can reduce the approval process by weeks.
Find the Right SBA-Approved Lender
Not all lenders offer equal SBA loan services. Focus on lenders with Preferred Lender status, as they have more autonomy in the approval process and often provide faster turnaround times. The SBA’s Lender Match tool serves as an excellent starting point to find approved lenders in your area.
When evaluating lenders, consider factors beyond interest rates. Look at their experience with your industry and their track record with SBA loans. A lender who understands your business can prove invaluable in navigating the application process.
Navigate the Application Process
The SBA loan application process requires attention to detail, but don’t let this deter you. Start by submitting your business plan and financial documents to your chosen lender. They’ll review your materials and may request additional information.
Prepare for a thorough due diligence process. The lender will likely conduct an independent valuation of the business you plan to purchase. They’ll also review the seller’s financials to ensure the business represents a good investment.
Throughout this process, maintain open communication with your lender. Respond promptly to requests for information and address any concerns they might have proactively. SBA loan approval could take a few weeks to six months, depending on the type of loan you’re applying for.
Patience and persistence play key roles in this process. While it may seem daunting, the favorable terms of an SBA loan make it worth the effort for many business buyers. With thorough preparation and the right guidance, you can successfully navigate the SBA loan process and take a significant step towards business ownership.
Now that you understand how to secure an SBA loan for your business purchase, let’s explore some key considerations you should keep in mind when using these loans. These factors will help you make informed decisions and maximize the benefits of your SBA loan.
What You Should Know Before Getting an SBA Loan
Down Payment and Equity Injection
SBA loans require a down payment (equity injection) of 10% to 30% of the total loan amount. For a $1 million business purchase, you’ll need $100,000 to $300,000 out of pocket. This injection proves your commitment and reduces lender risk. Start saving early and explore various sources for your down payment (personal savings, retirement accounts, or seller financing).
Collateral and Personal Guarantees
SBA loans often require collateral to secure the loan. This can include business assets, real estate, or personal assets. Be ready to pledge these assets as part of your loan agreement.
Individuals who own 20% or more of a small business applicant must provide an unlimited personal guaranty. This means you’re personally responsible for repaying the loan if the business can’t. Ensure you’re comfortable with this level of personal financial risk before proceeding.
Use of Funds and Restrictions
SBA loans have specific guidelines for fund usage. While they primarily finance business acquisition, you can also use them for working capital, inventory, or equipment purchases related to the acquisition.
These loans can’t fund certain purposes, such as investing in rental real estate or reimbursing yourself for previous expenses. Always clarify acceptable uses with your lender to avoid potential issues.
Repayment Terms and Interest Rates
SBA loans offer favorable repayment terms. Repayment periods extend up to 25 years for real estate and 10 years for other business acquisitions. These extended periods can significantly lower your monthly payments, improving your cash flow.
Interest rates on SBA loans are typically lower than traditional bank loans. As of April 2025, the current prime rate is 7.5%. These rates are often variable and tied to the prime rate, so factor in potential rate increases when planning your long-term finances.
Final Thoughts
SBA loans provide a powerful tool for entrepreneurs to acquire existing businesses. These government-backed loans offer lower interest rates, extended repayment terms, and smaller down payments compared to traditional financing options. You can use an SBA loan to buy a business, making your dream of business ownership a reality while preserving capital for operations and growth.
The process of securing an SBA loan requires thorough preparation and understanding. Craft a comprehensive business plan that outlines your vision and strategy, and gather all necessary financial documents meticulously. Choose your lender wisely, focusing on those with Preferred Lender status and experience in your industry.
Unbroker offers innovative solutions to streamline the business acquisition process. Our platform provides transparent, low-cost options for both buyers and sellers, eliminating high brokerage fees and leveraging AI-driven processes to connect you with the right opportunities. Explore Unbroker’s services to simplify your journey towards successful business ownership through SBA financing.
