# Financing the purchase of a business

Source: https://businessloanbroker.ai/situations/buying-a-business/
Site: BusinessLoanBroker.ai (powered by Levr)

> Most business purchases are financed with an SBA 7(a) loan, 10% down and a seller note. Who qualifies, what it costs, the timeline, and what kills a deal.

Most business purchases under $5 million are financed with an [SBA 7(a) loan](https://businessloanbroker.ai/business-loans/sba-7a-loans/), 10% of the price from you, and often a note from the seller for part of the balance. Your odds are good if the business has three years of tax returns that cover the new debt, you have relevant experience, and the price is in line with its earnings. Expect 60 to 120 days from offer to closing and close to bank pricing. Conventional [acquisition loans](https://businessloanbroker.ai/business-loans/business-acquisition-loans/) fit buyers with more cash and larger deals.

## Key facts
- **Will consider you:** SBA 7(a) lenders, bank acquisition lenders, seller financing, franchise lenders
- **Will decline you:** Advances, revenue based and online term lenders, which need your own operating history
- **Typical cost premium:** Little: SBA and bank acquisition loans price near standard bank rates
- **Fastest realistic timeline:** 60 to 120 days, longer with real estate
- **What improves odds:** 10% in cash, industry experience, clean seller financials, a sensible price

## Can you get a loan to buy a business?

Yes, and this is one of the easier situations on this site, because the lender underwrites the business you are buying rather than one you have not built yet. The target needs two or three years of tax returns showing enough profit, after your salary, to cover the loan payment with about 1.25 times to spare. You need 10% of the total project in cash, reasonable credit, usually 680 or better, and experience that makes a lender believe you can run it.

The honest limits: lenders will not finance a price the earnings do not support, no matter how much you want the business, and they will not accept borrowed money as your down payment. A seller note can count toward part of the equity on SBA deals if it is on standby for the life of the loan.

## Which products will consider you, ranked by fit

Ranked by fit for a typical purchase:

- SBA 7(a): up to $5 million, ten year term, 10% down, goodwill financed. The default for deals under $5 million.
- Seller financing: the seller carries 10% to 30% of the price on a note, usually at 6% to 10%. Lenders like it because the seller stays invested.
- Conventional bank acquisition loans: 20% to 30% down, five to seven year terms, faster than SBA for strong buyers.
- [Franchise financing](https://businessloanbroker.ai/business-loans/franchise-financing/): brand programs and SBA lenders familiar with the system, for buying an existing franchise unit.
- [SBA 504](https://businessloanbroker.ai/business-loans/sba-504-loans/) alongside 7(a) when the purchase includes the building.

## Which products will decline you, so you stop wasting applications

Merchant cash advances, revenue based financing and online term lenders underwrite your existing business's bank statements, so they cannot fund a purchase of someone else's company. Equipment lenders will finance specific equipment inside the deal but not the goodwill. Unsecured loans top out far below most purchase prices.

SBA lenders will also decline specific deals: a seller who will not provide tax returns, a price based on projections rather than history, a buyer with no experience in the industry and no plan to keep the management, and cash injections that cannot be traced to your own accounts. [Why loans get denied](https://businessloanbroker.ai/guides/why-loans-get-denied/) covers the fixes.

## How to improve your odds in 30, 90 and 180 days

In 30 days: get the seller's last three years of tax returns, year to date financials and a list of assets, and run the numbers yourself with the [DSCR calculator](https://businessloanbroker.ai/tools/dscr-calculator/). Sign a letter of intent with a price the earnings support. Get your own tax returns, personal financial statement and resume ready.

In 90 days: the loan is in underwriting. Respond to document requests the same day, order the business valuation the lender requires, and negotiate the seller note and transition period. Keep your cash injection untouched in your own account.

In 180 days: you own the business. Set up a line of credit for working capital, keep clean books from day one, and plan to refinance any seller note when the business proves itself.

## What will it cost compared with a standard borrower?

Acquisition financing is priced close to standard bank loans. SBA 7(a) runs prime plus 3% to 6.5%, with the lowest spreads on loans over $350,000, plus a guarantee fee of roughly 2% to 3.75% on the guaranteed portion that is usually financed into the loan. Conventional acquisition loans run 7% to 11%. Seller notes run 6% to 10%. Add closing costs: the lender's business valuation, legal fees, lien searches and, with real estate, an appraisal and environmental report, together commonly $10,000 to $30,000.

The hidden cost is the personal guarantee and, over $350,000, a lien on your home if you have equity in it. Read [how to read a term sheet](https://businessloanbroker.ai/guides/how-to-read-a-term-sheet/) before you sign, and use the [SBA loan calculator](https://businessloanbroker.ai/tools/sba-loan-calculator/) to see the monthly payment against the business's profit.

## How to apply

Apply once here with the seller's financials, your personal financial statement, resume and letter of intent, and your application reaches SBA, bank acquisition and franchise lenders together. Or connect your AI assistant to our MCP server through the [agents hub](https://businessloanbroker.ai/agents/) and let it read the seller's returns, build the application and submit it. It is free to the buyer, and offers come back to the same place so you can compare rate, term and down payment.

| Product | Share of price | Typical cost | Term | Best for |
|---|---|---|---|---|
| SBA 7(a) | Up to 90% of project | Prime plus 3% to 6.5% plus fee | 10 years, 25 with real estate | Most deals under $5M |
| Seller note | 10% to 30% | 6% to 10% | 3 to 7 years, often on standby | Bridging the equity gap |
| Conventional acquisition loan | 70% to 80% | 7% to 11% APR | 5 to 7 years | Larger deals, strong buyers |
| Asset based line after close | Against receivables and inventory | 8% to 18% APR | Revolving | Working capital in the new business |

## Questions and answers
**How much do I need down to buy a business?**

Typically 10% of the total project cost for an SBA 7(a) loan, which includes the price, working capital and closing costs. Part of that can be a seller note on full standby. Conventional lenders want 20% to 30%. The money must be yours, traceable in your accounts, not borrowed from another lender.

**Can I buy a business with no experience in the industry?**

Sometimes. Lenders accept transferable management experience if the seller stays through a transition or the existing manager remains. Licensed trades and professions require the buyer or a key employee to hold the license. Franchises help because the brand trains you. No experience and no retained management is usually a decline.

**How long does it take to close an SBA acquisition loan?**

Typically 60 to 120 days from a signed letter of intent, with real estate adding time for an appraisal and environmental report. The slow parts are the seller producing documents, the business valuation, and the buyer's cash injection being verified. A complete package on day one shortens it considerably.

**What price will a lender finance?**

A price the business's historical cash flow supports with about 1.25 times coverage after your salary, which for most small businesses works out to roughly two to four times annual earnings. Lenders also order an independent valuation on larger deals. A price above what the valuation supports means a bigger down payment or a bigger seller note.

## Related
- [Business acquisition loans](https://businessloanbroker.ai/business-loans/business-acquisition-loans/)
- [SBA 7(a) loans](https://businessloanbroker.ai/business-loans/sba-7a-loans/)
- [Franchise financing](https://businessloanbroker.ai/business-loans/franchise-financing/)
- [How to read a business loan term sheet](https://businessloanbroker.ai/guides/how-to-read-a-term-sheet/)

## Apply
Apply for the business: https://apply.businessloanbroker.ai/signup?utm_source=direct&utm_medium=organic&utm_content=md-buying-a-business
MCP server for AI agents: https://mcp.businessloanbroker.ai/mcp (docs: https://businessloanbroker.ai/agents/mcp/)