Financing a purchase with an SBA 7(a) loan

9 min read · Updated

The 7(a) program is the most common way to finance the purchase of a small business in the U.S. It is also a rulebook: the SBA's Standard Operating Procedure sets what the lender can and can't do, and several of those rules shape the offer you make. This guide walks them in the order you meet them.

Before you apply

  1. Check that the business, and you, qualify

    When
    Before you talk to a lender

    The business has to be an operating, for-profit business located in the U.S., small under SBA size standards, not a type of business the SBA excludes, and unable to get the credit it wants on reasonable terms elsewhere.

    From SBA — 7(a) loans, read

    Every owner of the borrower, and every guarantor the SBA requires, must be a U.S. citizen or U.S. national whose principal residence is in the United States.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  2. Find a lender

    When
    Before you make an offer
    Who decides
    An SBA lender

    The SBA doesn't make 7(a) loans directly. It guarantees loans that participating lenders make.

    From SBA — 7(a) loans, read

    The SBA's Lender Match tool isn't a loan application. It's a way to find lenders in your area who may be interested in your request.

    From SBA — Lender Match, read

    The lender negotiates the interest rate with you, up to maximum rates the SBA sets.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

    Talk to more than one lender. Each has its own appetite for acquisitions, and its own view of what the business earns.

How the deal has to be built

  1. Put together the equity

    When
    Before you sign the letter of intent
    Who decides
    You and the lender

    For an initial acquisition, the minimum equity injection is 10% of total project costs — all the costs of becoming operational, whatever the source of funds — and it can't be reduced or eliminated.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

    Seller debt counts as equity only if it is subordinated to the lender and on full standby: no payments of principal or interest for the term of the 7(a) loan. Seller debt and the other limited sources together may provide no more than half of the required injection.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  2. Leave earnouts out

    When
    When you structure the offer

    Seller earnouts are prohibited on an SBA loan. Buyer rebates tied to the business's performance are allowed.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  3. Agree how long the seller stays

    When
    In the letter of intent
    Who decides
    You, the seller and the lender

    When you buy the whole business, the seller can't stay on as an officer, director, owner or employee. They can work for the business as a consultant for no more than 24 months in total, including any extensions.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  4. Expect a long-term loan, but not that long

    When
    When the lender quotes terms

    A 7(a) loan that finances a change of ownership can't be amortized over more than 10 years. Only the real estate part of a purchase can run longer, up to a 25-year term.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

What the lender checks

  1. The seller's numbers, against the IRS

    When
    During diligence
    Who decides
    The SBA lender

    On a change of ownership, the lender must verify the seller's financial data — including a selling sole proprietor's Schedule C — and check the figures the valuation relied on against the seller's IRS transcripts.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  2. The value of the business

    When
    During diligence
    Who decides
    The SBA lender, and a valuation professional

    If the purchase price is $350,000 or less, the lender may value the business itself, unless buyer and seller are closely related. Above that, the SBA's rules call for an independent business valuation.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

    When the purchase price is $3 million or more, the lender must also get a Quality of Earnings report, on top of the valuation. The threshold is measured before equity, seller debt or other financing.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

  3. Your personal guarantee

    When
    At approval
    Who decides
    The SBA lender

    Anyone with direct or indirect ownership of 20% or more of the borrower must provide an unlimited full guarantee.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read
    How much of the loan the SBA guarantees

    The SBA guarantees up to 85% of a loan of $150,000 or less and up to 75% of a larger one, with a maximum guaranty of $3,750,000.

    From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), read

Next guide: Due diligence, step by step

This guide summarises the SBA's rules for general information. It is not legal, tax or financial advice, and your lender applies the rules to your deal. Each rule above links to the page it came from and the date we read it.