These are the rules for a 7(a) loan used to buy a business. They come from the SBA's lending rulebook, which the SBA rewrote in October. Your lender can ask for more than this, but not less.
What changed in October
| Rule | Before | From Oct 1, 2026 |
|---|---|---|
| Cash-flow cover | 1.15×, and projections could count | 1.25×, from past earnings only |
| Green card holders | Could own the business | Can't own any of it |
| What counts as your 10% | Cash, and some non-cash assets | Cash-type sources only. Seller notes, standby debt and minority investors share one cap: half |
| Seller staying on as a consultant | Up to 12 months | Up to 24 months |
| Lender can value the business itself | Up to $250,000 financed | Purchase price up to $350,000 |
| Quality of Earnings report | Not required | Required at a $3 million+ purchase price |
| Small loans and SBA Express | Lighter rules | Same cash-flow and equity rules as every other purchase |
| Financial statements | Tax returns or statements | The best available: audited, then reviewed, compiled, tax returns |
The "Before" column is the version the October rules replaced, which took effect on June 1, 2025.
The requirements in detail
You: citizenship and where you live
- When
- Before you talk to a lender
- Who decides
- The SBA lender
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readEvery direct and indirect owner of the business, and every guarantor the SBA requires, must be a U.S. citizen or U.S. national whose main home is in the U.S. or its territories.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readGreen card holders, visa holders, asylees, refugees and DACA recipients are not eligible owners. Neither are citizens of the People's Republic of China or Hong Kong, or U.S. citizens who live abroad.
If someone who doesn't qualify owns part of the business now
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readThe business qualifies only if that person has sold their whole stake before the SBA issues a loan number. The SBA looks back 6 months for this.
The business
- When
- Before you make an offer
- Who decides
- The SBA lender
From SBA — 7(a) loans, readThe business must be an operating, for-profit business in the U.S., small under SBA size standards, and not a type of business the SBA excludes. It must also be unable to get the loan on reasonable terms elsewhere.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readA franchise qualifies only if its brand is on the SBA Franchise Directory.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readIf the business needs a professional license, such as HVAC or a med spa, the ownership must meet the state's licensing rules. The seller can't stay on as the license holder after closing.
Your money in
- When
- When you structure the offer
- Who decides
- You and the lender
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readFor a buyer new to the business, the equity injection is at least 10% of the total project cost. The lender cannot reduce or waive it.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readAt least half of it must come from cash you didn't borrow (a gift counts), a personal loan repaid from income outside the business, a grant that can't be clawed back, or verified prepaid expenses.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readThe other half, at most, can come from a seller note on full standby, other standby debt, or minority investors who own under 20% and have no control. Full standby means no principal or interest payments for the life of the SBA loan.
If an investor's money makes up part of your equity
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readUntil the SBA loan is paid off, that investor can only receive distributions to cover their tax on the business's income.
The cash flow
- When
- During underwriting
- Who decides
- The SBA lender
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readThe business's earnings must cover all its debt payments after the purchase at least 1.25 times. The lender uses the last fiscal year, or an average of the last two, on a historical or adjusted basis.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readProjections can't be used to meet the 1.25×. If a Quality of Earnings report is required, its figures set the coverage, and the loan shrinks if they fall short.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readYour own finances count too: a global cash-flow check, including your personal debts, must show at least 1.0× cover.
The price against the value
- When
- During diligence
- Who decides
- The lender, and a valuation professional
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readAbove a $350,000 purchase price, or when buyer and seller are closely related, the business needs an independent valuation. At $350,000 or less, the lender may value it itself.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readAt a purchase price of $3 million or more, the lender must also get a Quality of Earnings report, prepared for the lender. You can be charged for both, and what you pay counts toward your equity.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readTotal debt, including a seller note that isn't on full standby, can't exceed the valuation. Anything you pay above it must come from equity or a full-standby seller note.
The loan itself
- When
- When the lender quotes terms
- Who decides
- The SBA lender
From SBA — 7(a) loans, readThe maximum 7(a) loan is $5 million.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readThe part of the loan that buys the business can't be amortized over more than 10 years. Only the real estate part of a purchase can run longer, up to 25 years.
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readAnyone who owns 20% or more of the business must give an unlimited personal guarantee.
When the business assets don't cover the loan
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readIf the loan isn't fully secured, the lender must take a lien on available equity in real estate owned by 20% owners, including their home. It doesn't have to when that equity is under 25% of the property's value.
The seller's role after closing
- When
- In the letter of intent
- Who decides
- You, the seller and the lender
From SBA — SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), readWhen you buy the business, the seller can't stay on as an owner, officer, director or employee. They can work as a consultant for up to 24 months in total.
Next guide: Financing a purchase with an SBA 7(a) loan
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.