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 turn to SBA loans to make their business acquisition dreams a reality.
An SBA loan to buy a business can provide the necessary capital with favorable terms, making it an attractive option for those looking to enter the world of business ownership. In this post, we’ll break down everything you need to know about using SBA loans for business acquisition, from eligibility criteria to the application process and key considerations.
What Are SBA Loans for Business Acquisition?
SBA loans provide a powerful financing tool for entrepreneurs who want to buy an existing business. These government-backed loans, offered through the Small Business Administration, often present more accessible and favorable terms than traditional bank loans.
Types of SBA Loans for Business Acquisition
The SBA 7(a) loan program stands out as the most popular choice for business acquisitions. It offers loans up to $5 million with competitive interest rates. The SBA provides performance data for their loan programs by fiscal year. These loans serve various purposes, including business purchases, real estate acquisitions, and equipment financing.
The CDC/504 loan program presents another option, specifically designed for major fixed asset purchases. While less common for business acquisitions, it proves useful when buying a company along with its real estate.
Qualification Criteria for SBA Loans
To qualify for an SBA loan, you must meet specific criteria:
- Your business must operate for profit in the U.S. or its territories.
- You should have reasonable owner equity to invest (typically 10-20% of the loan amount).
- You must exhaust other financing options before applying.
Your personal credit score plays a significant role. While the SBA doesn’t set a minimum credit score, most lenders prefer scores of 680 or higher. According to recent eligibility updates, a credit score of 660+ is typically required for SBA 7(a) loans.
Advantages of SBA Loans for Business Acquisition
SBA loans offer several benefits for business buyers:
- Lower down payment requirements: While traditional banks might ask for 20-30% down, SBA loans often require only 10-15%.
- Competitive interest rates: As of February 2025, the SBA loan rates are: Prime Rate: 7.5%, LIBOR (One Month + 3%): 4.9602%, SBA PEG Rate: 4.38%. These rates often undercut other financing options.
- Longer repayment terms: SBA loans can offer terms up to 25 years for real estate purchases. This extended period can significantly reduce your monthly payments, improving your cash flow as you grow your newly acquired business.
The Application Process
The application process for an SBA loan involves several steps:
- Gather necessary documentation (financial statements, business plan, tax returns).
- Find an SBA-approved lender.
- Submit your application and wait for approval.
While the process can seem complex, the benefits often outweigh the challenges for those looking to step into business ownership. As you prepare to navigate the SBA loan landscape, it’s essential to understand the application process in detail. Let’s explore the steps involved in securing an SBA loan for your business acquisition.
How to Apply for an SBA Loan
Gather Your Documentation
The first step in applying for an SBA loan to buy a business involves collecting necessary paperwork. You’ll need:
- Personal and business tax returns (last 3 years)
- Personal financial statement
- Business financial statements (if purchasing an existing business)
- Detailed business plan
- Proof of collateral
- Personal resume
Your business plan plays a vital role. It should outline your strategy for operating the acquired business and show how you’ll repay the loan.
Select the Right Lender
Not all lenders offer equal opportunities for SBA loans. Focus on SBA Preferred Lenders – they have more authority to approve loans without SBA review, which can speed up the process.
Consider working with a community bank or credit union. These institutions often provide more flexibility and personalized service.
Navigate the Application Process
After choosing a lender, the application process typically follows these steps:
- Initial application submission
- Lender review (1-2 weeks)
- Underwriting (2-3 weeks)
- SBA approval (5-10 business days)
- Closing (1-2 weeks)
The entire process usually takes 30 to 90 days. (Complex acquisitions may require more time.)
During underwriting, prepare for detailed questions about your business plan and financials. Lenders want to see that you understand the business you’re buying and have a solid plan for success.
Patience is a virtue in this process. The SBA loan procedure is thorough, but it aims to protect both you and the lender. Maintain regular contact with your lender and respond promptly to any requests for additional information.
The next section will explore key considerations when using SBA loans, helping you make informed decisions as you move forward with your business acquisition plans.
What You Should Know About SBA Loan Terms
Down Payment Requirements
SBA loan down payment requirements often range between 0%-10% based on factors like your credit score. This percentage is lower than traditional bank loans (which often demand 20-30%). The exact percentage depends on factors such as the business’s value, your credit score, and the lender’s policies.
For a $1 million business purchase, you might need to put down up to $100,000. This sum represents a significant investment in your future. Some buyers use personal savings, while others tap into retirement accounts or seek investor backing.
Interest Rates and Repayment Terms
SBA loan interest rates are typically variable, based on the prime rate plus a margin. As of April 2025, the prime rate is 7.5%. These rates compete favorably with many traditional business loans.
Repayment terms can extend up to 10 years for business acquisitions, or even 25 years if real estate is involved. Longer terms result in lower monthly payments, which can improve cash flow in the early years of ownership.
A $500,000 loan at 7.5% interest over 10 years would result in monthly payments of about $5,900. Over 25 years, that amount drops to around $3,700 (though you’ll pay more in interest over the longer term).
Collateral and Personal Guarantees
The SBA typically requires a personal guarantee from anyone owning 20% or more of the business. This requirement means you’re personally responsible if the business can’t repay the loan.
Collateral requirements vary. The SBA will take a lien on the business assets you’re purchasing. If these assets don’t fully secure the loan, they may look at your personal assets. This could include your home, though the SBA tries to avoid this if possible.
These requirements shouldn’t scare you off. They represent standard practice and protect both the lender and the SBA. If you’ve conducted thorough due diligence on the business you’re buying, these shouldn’t become deal-breakers.
While these terms might seem daunting, they often prove more favorable than other financing options. The key is to approach the process with a clear understanding of what you’re signing up for.
Final Thoughts
SBA loans provide a powerful tool for entrepreneurs who want to buy a business. These loans offer lower down payments, competitive interest rates, and longer repayment terms, which can make business ownership more accessible. The process requires careful preparation, including gathering comprehensive documentation and crafting a solid business plan.
We at Unbroker understand the complexities of business acquisitions. Our modern platform for selling businesses offers transparent, low-cost options that can benefit both buyers and sellers. We provide expert support, access to a vast buyer network, and tools to streamline the business sale process.
An SBA loan to buy a business is an excellent option, but it’s not the only path to business ownership. Some buyers might explore seller financing, traditional bank loans, or even crowdfunding (each with its own pros and cons). The best choice depends on your specific situation and the business you plan to acquire.
