Purchasing a business allows entrepreneurs to step into ownership with a ready customer base existing income, and established systems that run the operations. To make this happen in the U.S., the Small Business Administration (SBA) offers the 7(a) loan program as a strong option to finance the purchase—even if you don’t have large sums of cash saved up.
SellAnyBiz guides buyers and sellers of businesses across the U.S., UK, and UAE on a global scale. If you are in the U.S. and want to buy a business here’s how you can use an SBA loan for this purpose.
What Is an SBA 7(a) Loan?
The SBA 7(a) loan is the most used loan program backed by the SBA. Its purpose is to help small businesses get funding through approved lenders. The SBA does not lend money itself; instead, it guarantees part of the loan. This lowers risk for lenders and helps borrowers qualify more .
Borrowers can use a 7(a) loan to:
- Purchase an existing business
- Buy commercial property
- Get equipment or stock inventory
- Cover everyday business expenses
When buying a business, SBA loans can finance up to 90% of the cost. This means buyers may need to put down 10% making it one of the simplest ways for new business owners to secure funds.
Requirements to Qualify for an SBA Loan
To get an SBA 7(a) loan to purchase a business, you need to:
- Run a U.S.-based business that operates for profit.
- Fall within the SBA size limits, which depend on your revenue or number of employees.
- Prove you can pay back the loan.
- Show a solid business reason for the loan.
- Be unable to find financing from other sources under reasonable conditions.
- guarantee the loan if you own at least 20% of the business.
Lenders will also review your credit history, your management skills, and the current financial condition of the business you want to buy.
What Types of Businesses Can You Acquire?
You can use SBA loans to purchase many kinds of businesses such as:
- Shops and stores
- Cafes and dining spots
- Service businesses like salons, gyms, or cleaning companies
- Professional services such as lawyers, doctors, or accountants
- Franchise businesses
The company has to be up and running, making money, and based in the U.S. Nonprofits, gambling ventures, lenders, or high-risk ideas do not qualify.
What Loan Amount is Available?
The SBA 7(a) loan program provides loans as high as $5 million. To buy a business, the SBA asks the buyer to contribute at least 10% equity upfront. If a business costs $500,000, you would need to put in at least $50,000 yourself while the SBA loan would cover the remaining $450,000.
Borrowers and lenders agree on interest rates, but the rates must stay within SBA limits. For business purchases, loan terms can go up to 10 years.
Key Documents You’ll Need
To apply for an SBA loan, prepare the following:
- Personal and business tax returns (last 3 years)
- Personal financial statement
- Business financial statements (profit & loss, balance sheet)
- Business valuation or appraisal
- Purchase agreement or letter of intent
- Business plan with financial projections
- Details of collateral (if applicable)
An independent business valuation is often required, especially for transactions over $250,000.
The SBA Loan Application Process
- Find the Right Business: Conduct thorough due diligence to ensure the business is a good fit and priced appropriately.
- Engage Professionals: Work with a business broker, attorney, and accountant to navigate the acquisition process.
- Choose an SBA-Approved Lender: Preferably, select a lender with SBA Preferred Lender Program (PLP) status for expedited processing.
- Submit Your Application: Provide all required documentation and complete the necessary SBA forms.
- Underwriting and Approval: The lender will review your application, assess risk, and make a credit decision.
- Closing: Upon approval, finalize the purchase agreement, and the lender will disburse funds to complete the acquisition.
The entire process can take anywhere from 60 to 90 days, depending on the complexity of the transaction and the responsiveness of all parties involved.
Tips for a Successful SBA Loan Application
- Strong Credit Profile: Aim for a personal credit score of 680 or higher.
- Relevant Experience: Demonstrate experience in the industry of the business you’re acquiring.
- Solid Business Plan: Present a comprehensive plan with realistic financial projections. Transparent Financials: Ensure the seller provides accurate and complete financial records.
- Adequate Collateral: Be prepared to offer collateral, which may include personal assets, to secure the loan.
How SellAnyBiz Can Help
At SellAnyBiz, we specialize in connecting buyers and sellers of businesses across the U.S., UK, and UAE. Our platform offers a curated selection of businesses for sale, including those eligible for SBA financing.
We provide resources and guidance throughout the acquisition process, from identifying suitable opportunities to navigating financing options. Our team can assist you in preparing your SBA loan application and connecting you with experienced lenders.
📞 Ready to Buy a Business?
If you’re considering purchasing a business and want to explore SBA loan options, visit SellAnyBiz to browse available listings and resources. Our team is here to support you every step of the way in your entrepreneurial journey.
