Self-Funded Search: How to Buy a Business with SBA Financing (Complete Guide)

Self-funded search has become one of the most popular paths to business ownership for ambitious entrepreneurs who want to acquire a company without raising outside capital or giving up equity.

The model is simple: find a profitable small business, acquire it with SBA financing, and operate it as the owner-CEO. No investors to answer to. No fund to raise. Just you, a business, and a proven lending program that makes it possible.

What Is Self-Funded Search?

Self-funded search is an acquisition model where an individual (“searcher”) uses personal savings and debt financing—primarily SBA loans—to buy and operate a small business. Unlike traditional search funds that raise investor capital for the search phase and acquisition, self-funded searchers maintain 100% ownership.

The Core Model

• You fund the search: Cover your own living expenses and deal costs during the search period (6-24 months)
• You fund the equity: Provide the 10% down payment from personal savings, 401(k) rollover, or family support
• SBA funds the acquisition: 7(a) loan covers 90% of the purchase price plus working capital
• You own 100%: No equity dilution, no investor board, no outside pressure

Self-Funded vs. Traditional Search Funds

Why Choose Self-Funded?

Advantages: Full ownership and control, no investor relationships to manage, flexible timeline and strategy, keep 100% of upside on exit, no fundraising process.

Trade-offs: Personal financial risk (personal guarantee on SBA loan), self-fund search period expenses, smaller deal sizes (typically under $5M), no institutional support network.

Why SBA Financing Works for Self-Funded Search

The SBA 7(a) loan program is purpose-built for self-funded acquisitions:

10% Down Payment

Standard SBA equity injection is just 10% of the purchase price—far less than the 25-30% required for conventional acquisition loans. On a $2M deal, that’s $200K vs. $500K+.

10-Year Amortization

Longer terms mean lower monthly payments and better cash flow. A $1.8M SBA loan at 11.5% over 10 years costs ~$25K/month vs. ~$38K/month over 5 years.

Working Capital Inclusion

SBA loans can include working capital for the transition period, so you’re not scrambling for additional financing post-close.

Capped Interest Rates

SBA rates are federally regulated. Even in high-rate environments, you’re protected from predatory spreads.

Lender Flexibility

Because the SBA guarantees 75-85% of the loan, lenders are more willing to finance first-time business buyers with relevant (but not identical) experience.

The Ideal Acquisition Target for Self-Funded Search

Size Parameters

Business Characteristics

What lenders love to finance:

• Recurring or repeat revenue: Service contracts, subscriptions, loyal customer base
• Diversified customers: No single customer over 15% of revenue
• Asset-light but profitable: Strong margins without heavy equipment dependency
• Owner-replaceable: Systems in place, not entirely dependent on seller’s relationships
• Stable or growing: Consistent performance over 3+ years

Industries that work well: B2B services (HVAC, plumbing, electrical, IT services), healthcare services (dental, PT, veterinary), manufacturing with established customers, distribution with long-term contracts, professional services (accounting, engineering, staffing).

How to Structure Self-Funded Acquisition Financing

Typical Capital Stack

For a $2.5 million acquisition:

Equity Requirements and Sources

What Counts as Equity (Per SBA SOP)

• Cash (not borrowed): Personal savings, liquidated investments
• 401(k) rollover (ROBS): Properly structured rollover for business startups
• Gifts: Family gifts with proper gift letter documentation
• Seller notes on full standby: Up to 50% of required equity
• Non-cash assets: Equipment or property contributed to the business (with appraisal)

What Doesn’t Count

• Borrowed funds (personal loans, credit cards, HELOCs with repayment from business)
• Seller notes with payments during SBA loan term
• Redeemable preferred stock or investor agreements with repayment triggers
• Search fund investor capital with equity recovery provisions

The Self-Funded Search Process

Phase 1: Preparation (1-2 months)

• Define your target criteria (industry, size, geography)
• Build financial runway for 12-24 month search
• Develop your buyer story and credentials package
• Connect with SBA brokers and lenders early
• Join searcher communities (Searchfunder, ETA groups)

Phase 2: Active Search (6-18 months)

• Source deals through brokers, direct outreach, online marketplaces
• Review 100+ opportunities to find 10-20 worth pursuing
• Submit LOIs on promising targets
• Conduct due diligence on accepted LOIs
• Expect 3-5 serious pursuits before closing one

Phase 3: Financing and Close (60-120 days)

• Package your SBA loan application
• Submit to multiple lenders (we recommend 5-10 simultaneously)
• Select lender and complete underwriting
• Finalize legal documents
• Close and fund

SBA-Specific Considerations for Self-Funded Searchers

Experience Requirements

Lenders want to see relevant experience. For self-funded searchers, this typically means:

• Management or leadership roles in similar industries
• Functional expertise transferable to the target (operations, finance, sales)
• Demonstrated business acumen (MBA, consulting, entrepreneurship)

If your background is less directly relevant, consider: retaining the seller as a consultant post-close, hiring an experienced GM or COO, or partnering with an industry expert.

DSCR Requirements

Your acquisition must demonstrate ability to service debt. Lenders typically require DSCR of 1.15x-1.25x, calculated as:

DSCR = (SDE – Owner Salary) ÷ Annual Debt Service

Remember to account for your own salary when calculating pro forma DSCR.

Common Self-Funded Search Challenges

Challenge 1: Running Out of Runway

Problem: Search takes longer than expected; personal savings depleted

Solution: Budget for 18-24 months. Consider part-time consulting during search. Set hard decision points for continuing or returning to employment.

Challenge 2: Competing with Well-Funded Buyers

Problem: PE firms and funded searchers can move faster and pay more

Solution: Target smaller deals ($1-3M) where institutional buyers aren’t active. Emphasize your commitment to the business and employees.

Challenge 3: Seller Won’t Provide Standby Note

Problem: You need the seller note for 5% equity credit

Solution: Explain the tax benefits of installment sale treatment. Show that your SBA financing is solid. Be prepared to provide full 10% in cash if necessary.

Challenge 4: First-Time Buyer Skepticism

Problem: Lenders and sellers question ability to run the business

Solution: Document relevant experience thoroughly. Get pre-qualified with lenders before making offers. Show you’ve done your homework on the industry.

Real Self-Funded Search Success Stories

Case Study 1: Former Consultant Buys HVAC Company

Case Study 2: Corporate Finance Pro Acquires Manufacturing Business

Frequently Asked Questions