You will likely need a small business loan to finance your purchase of a new company or the sale of partners. The most well-known loan from the U.S. Small Business Administration, the SBA 7(a), can be a great option for business acquisitions. They offer competitive interest rates and long repayment terms. What amount do you […]

You will likely need a small business loan to finance your purchase of a new company or the sale of partners. The most well-known loan from the U.S. Small Business Administration, the SBA 7(a), can be a great option for business acquisitions. They offer competitive interest rates and long repayment terms.

What amount do you need?

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Why get an SBA loan to buy a business?

SBA 7(a), loans are the most flexible type and can be used to buy a business. While online and bank loans can be used to purchase a business, there are some reasons you may prefer an SBA loan.

  • Large loan amounts. Loan amounts up to $5,000,000 are possible.

  • Repayment terms can be very long. These loans can be repaid over a period of up to 25 year.

  • SBA loan rates have competitive interest rates. The maximum rate allowed by the SBA is set by it. SBA 7(a), loan rates currently range between 10% and 12.5%.

  • Government guarantee. If your loan is less than $150,000, the SBA will guarantee 85% and 75% respectively. Lenders are less likely to refuse small business loans because of this security.

  • Less difficult to qualify than bank loans.

  • Express option. This is part of the 7(a loan program. SBA Express loans are also available for business acquisitions. These loans are less flexible than the maximum funding (up to $500,000), but they are quicker to fund. Lender-approved applications get a response within 36 hours.

Who is eligible for an SBA loan to purchase a business?

A business acquisition is referred to as a “change in ownership”. An SBA7(a) loan can be used for ownership changes in these scenarios:

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  • A small company purchases 100% of an interest in a business.

  • A person who is not an owner of the business purchases 100%.

  • Small businesses acquire another small business by purchasing assets.

  • An employee stock ownership plan (ESOP), or an equivalent trust, purchases a controlling stake (51% or more), in the employer’s small business.

Current ownership

The SBA requires that any change in ownership encourages development and/or maintains the existence of a business.

How can I get an SBA acquisition loan?

To be eligible for an SBA loan to purchase a business, you will need to meet the eligibility criteria set forth by the SBA and your lender.

General SBA loan requirements

  • Your business must be for-profit.

  • You need to be located in the United States or one of its territories and do business there.

  • Your business must be in an eligible sector.

  • A small business must meet the requirements of the SBA.

  • Before you apply for an SBA loan, you must have explored other financing options.

  • You must have put time and money into your business as a business owner.

Business acquisition loan requirements

The SBA requires Business acquisition loans. It also requires one of these, depending on your situation.

  • A minimum of 10% equity injection is required to obtain new ownership. All costs related to the ownership change, regardless of source, are included.

  • To make a change between owners.

    If the 7(a), loan is to finance more than 90% of a partner buyout’s purchase price, the remaining owners must sign a declaration that they have actively participated in the operation of the business and had a continuing or increasing ownership interest for the least 24 months. The business balances for the current quarter and the most recent fiscal year must show a debt-to–worth ratio of not more than 9:1 before the change in ownership. If the lender is unable to document these requirements, the remaining owners will need to contribute cash equal 10% of the business’ purchase price


SBA loan underwriting requirements

SBA lenders are typically banks or credit unions. However, they generally use the following criteria to assess loan applications:

  • Credit history. To be eligible for an SBA loan, you will need good credit. Lenders are usually looking for a credit score of 690 or more.

  • You must have been in business for at least two years. To qualify for a loan to purchase a business, you must have a company that is already established or looking to buy one.

  • Your business finances. Lenders want to see strong financial records that demonstrate your ability to repay the loan. This includes projected cash flow and annual revenue. To ensure you are able to manage new debt while managing the acquisition of a business, the lender will want to review your financial history.

  • Collateral. Collateral. Because business acquisitions are often complex and costly, your SBA lender may ask you for collateral in order to secure your loan. You can use inventory, equipment, and real estate as collateral.

How can I apply for an SBA loan to acquire a business?

You should start the process of applying for an SBA loan if you feel that it is a good fit to finance your business acquisition. If you already have a relationship with the institution, you might begin your search at a local bank or credit card union.

The SBA’s Lender Match tool is also available. You can use the Lender Match tool to provide basic information about your company and receive an email within two days with potential lender matches.

Once you have found a lender you can begin to prepare and submit your application. While the requirements for documentation may vary between lenders, most applicants will need to supply:

  • Borrower Information Form,

  • Personal background and financial statement ( Form 413 , and SBA Formula 912)

  • SBA Form148, Unconditional Garant (or the equivalent lender’s)

  • Financial statements for business, including balance sheets, profit and losses statements and projected cash flow statements.

  • License or certificate for business.

  • Income tax returns.

  • Resumes to be used by business owners.

  • History and overview of Businesses.

  • Business lease.

  • Existing debt schedule, if applicable.

  • Collateral information.

  • Current business valuation.

  • A detailed analysis of how the transfer of ownership will affect the development and/or preservation of the business.

  • Stock and asset purchase agreements.

  • Financial information of the seller.

SBA acquisition loans require additional documentation such as a business valuation or purchase agreements. This may not be required for other SBA loans. Your lender will assist you in completing the application and answering any questions about the paperwork.

Once you have submitted your application, we will wait for approval. You may get a decision quicker if your SBA lender has become a Preferred Loan Partner (or PLP) because these lenders are able to make credit decisions directly without the need to submit an application through the SBA. The average time it takes to get funding is between 30 and 90 days.

Get the right loan

The best business loan is the one that has the best terms and rates. Other factors, such as your time and business qualifications, can also influence which loan option you choose. NerdWallet suggests comparing small-business loans in order to find the best fit for your company.

Questions frequently asked

Can an SBA loan also be used to purchase a business?

Yes, you can use both SBA Express and SBA 7(a), to purchase a business. These loans can be used for the purchase of an existing business, or to acquire partners.

What is the average time it takes to obtain an SBA loan to purchase a business?

It can generally take between 30 and 90 days to obtain an SBA loan. It depends on the type of loan and lender. These loans can take longer to fund due to the extra documentation needed for business acquisitions. However, an Express loan may speed up the process.

Is it possible to use an SBA 504 loan to purchase a business?

SBA 504 loans may be used to acquire fixed assets, and in certain situations, for projects that result in a change in ownership. However, these loans are not typically used for business acquisitions.