How to buy a business with an SBA loan (2026)

Buying an existing business is one of the most common uses of an SBA 7(a) loan. It is also the most tightly regulated. SOP 50 10 8.1, effective October 1, 2026, sets specific rules in its Appendix 15 for every change of ownership.

The three types of change of ownership

• Initial acquisition: you become the new majority or largest owner and were not previously an owner (or have worked in the business for less than 24 months).
• Business expansion: an existing business, operating for at least two full fiscal years under current ownership, buys 100% of another business in the same four-digit NAICS industry group.
• Owner buyout: ownership changes among the owners of the applicant, without buying another business.

Buying all or substantially all of a seller’s assets and continuing the operation counts as a change of ownership. Without that continuity, the lender may treat it as a start-up.

Equity injection

You need at least 10% of total project costs: the purchase price plus closing costs, working capital and anything else needed to complete the transaction.

• For an initial acquisition, the 10% cannot be reduced.
• For a business expansion or owner buyout, the lender may reduce or waive it if the business has enough liquidity and working capital and no negative net worth.

Limited sources (a seller note subordinated and on full standby, other debt on full standby, and non-controlling minority investors) can together supply no more than half of the requirement. “Full standby” means no payments of principal or interest for the life of the SBA loan.

Example: a $900,000 total project needs $90,000 of equity. A full-standby seller note can cover up to $45,000; at least $45,000 must come from your own cash, a gift or another unlimited source.

Debt service coverage on historical results

The business’s EBITDA must cover the debt service on all debt after the purchase, measured on the last fiscal year-end or the average of the last two years:

• 1.25 for an initial acquisition, owner buyout or ESOP
• 1.15 for a business expansion

The lender may adjust historical cash flow for justified items such as the seller’s discretionary expenses and compensation, and savings the new owner will realize, but every adjustment needs support. Interest-only seller debt that is not on full standby is treated as amortizing over no more than 10 years. Rent may be added back when the purchase includes the owner-occupied property.

Your projections still matter: the lender reviews them. But it cannot use them to meet the ratio. See how to calculate DSCR.

Loan term

In a business purchase, everything except real estate (goodwill, equipment, working capital, soft costs) gets a 10-year term. If the purchase includes real estate, only that portion can amortize longer, up to 25 years, and the loan’s maturity is blended by the weighted use of proceeds. The general 7(a) option of a 25-year term when 51% or more of a loan is real estate does not apply to changes of ownership. One exception: buying an owner-occupied special-purpose property integral to the business, where 85% or more of the project is real estate, can run up to 25 years.

Valuation

The lender obtains an independent valuation from an accredited, qualified source. The lender may do its own valuation when the price is $350,000 or less, unless buyer and seller are closely related. Purchases of $3 million or more (initial acquisitions and business expansions) also need a Quality of Earnings report with a cash proof.

Total debt cannot exceed the valuation. If you agree to pay more than the business is valued at, the difference must come from equity.

The seller’s role

In an initial acquisition or business expansion, the seller may not remain as an officer, director, stockholder or employee. If you need help with the transition, the business can contract with the seller as a consultant for no more than 24 months in total, including extensions.

Seller earnouts are prohibited. A buyer rebate tied to performance is allowed, but any rebate must be applied to the SBA loan principal.

Documents you will need

• The signed purchase agreement with all schedules and amendments
• The seller’s financial statements for the last three fiscal years plus interim statements, signed or certified by the seller within 120 days of submission
• The seller’s tax returns, which the lender verifies with IRS transcripts
• The business valuation (and Quality of Earnings report if required)
• A pro forma balance sheet at the date of transfer
• Your personal financial statement, résumé and tax returns
• Proof of your equity injection
• A business plan and transition plan, and an appraisal if real estate is included

The lender also visits the business you are buying.

A practical sequence

1. Get the seller’s last three years of tax returns and financials before you sign a letter of intent.
2. Test coverage at 1.25 on the historical numbers, including the new loan and any seller note.
3. Check the price against a valuation estimate.
4. Plan your equity: at least 10%, with limited sources no more than half.
5. Agree a consultant arrangement of no more than 24 months if you need the seller’s help.
6. Approach lenders with the whole package.

This article reflects SBA SOP 50 10 8.1, Appendix 15, effective October 1, 2026. Lenders may require more than SBA’s minimums.