How To Buy A Business With An SBA Loan

1. 1
   Step 1

   Learn How SBA Acquisition Loans Work

   What an SBA 7(a) acquisition loan is, who qualifies, how much you can borrow and how it compares with other ways to pay for a business.

   • How SBA Acquisition Loans WorkWho lends the money, what SBA guarantees, what the loan covers and the steps from search to closing.
   • SBA Loan Requirements To Buy A BusinessThe SBA rules for you, the business and the deal, and the extra things most lenders look for.
   • How Much Business Can I AffordThree limits set your maximum price: your cash, the business's cash flow and the valuation.
   • SBA Acquisition Loan TermsRepayment term, real estate, collateral, guaranties, fees and prepayment, in plain English.
   • SBA Vs Conventional Vs Seller FinancingHow the three main ways to pay for a business compare, when each fits, and how to combine them.
   • First Time Business Buyer GuideThe steps, the cash, what lenders want from a first-time owner and the mistakes to avoid.
   • What Businesses Qualify For SBA LoansThe basic eligibility test, SBA's list of ineligible businesses, the exceptions and franchise rules.
2. 2
   Step 2

   Plan Your Down Payment

   SBA requires at least 10% down on a business purchase. Here is every way to fund it, and the rules for each source.

   • The SBA Down PaymentThe 10% rule, what counts toward it, what counts for only half, and how the lender verifies it.
   • Buy A Business With 5% Down5% from you, 5% from a standby seller note: the math, the limits and why zero down does not exist.
   • Seller Notes On Full StandbyHow a standby seller note can cover up to half of the 10%, and what full standby really means.
   • Gift Funds For Your Down PaymentSBA lets a gift cover your whole Down Payment. Here is how to document it so the lender accepts it.
   • ROBS And Your 401(k)How ROBS works with an SBA loan, the extra SBA rules, and how it compares with other ways to use a 401(k).
   • Using Investors For The Down PaymentHow outside investors can fund part of your 10%, and the rules that decide how much counts.
   • Using Home Equity For The Down PaymentWhen a HELOC or home equity loan counts toward your 10%, and the repayment test that decides it.
3. 3
   Step 3

   Get Pre-Qualified And Find The Business

   Show sellers you can close, then find the right business through brokers, marketplaces or off-market outreach.

   • SBA Pre-Qualification LetterWhat a pre-qualification letter says, why sellers want it and how to use it to win the deal.
   • How To Find A Business To BuySet a buy box, size your price range from your cash and work every channel that finds good businesses.
   • Working With Business BrokersWho brokers work for, how they get paid, and how to become the buyer they call first.
   • How To Evaluate A Business ListingRead the listing and CIM, check the earnings against the tax returns and screen it for SBA financing.
   • Off-Market Business AcquisitionsHow to find and approach owners who have not listed, and how SBA financing works without a broker.
   • Buying A Franchise ResaleThe Franchise Directory, franchisor approval, transfer fees and how an SBA loan funds an existing location.
4. 4
   Step 4

   Value The Business And Make An Offer

   Work out what the business is really worth, whether its cash flow supports the loan, and how to put it in a letter of intent.

   • How To Value A BusinessSDE and EBITDA multiples, the three valuation approaches and how the lender's valuation fits in.
   • SDE And Add-BacksHow SDE is built, which add-backs hold up with SBA lenders and which ones get thrown out.
   • SBA Business Valuation RequirementsWho performs the valuation, who orders it, and what happens if it comes in below your price.
   • DSCR For Business AcquisitionsThe 1.25 rule, how lenders build the number, and what to do when a deal comes up short.
   • Writing The Letter Of IntentThe terms an SBA-financed LOI needs, the ones that cause trouble later, and a sample term sheet.
   • Negotiating Price And TermsThe levers that move a deal, from the standby note to the valuation, and how to use them.
5. 5
   Step 5

   Structure The Deal

   Seller notes, earnouts, asset or stock purchase, real estate, working capital, larger deals, partners and investors.

   • Seller Financing With An SBA LoanEvery kind of seller note in an SBA deal, what each one does, and the limits that apply.
   • Earnouts And SBA LoansSBA prohibits seller earnouts. Here are the SBA-compliant ways to bridge a price gap.
   • Asset Vs Stock PurchaseHow each structure works with an SBA loan, who signs, and what you inherit.
   • Buying A Business With Real EstateHow SBA finances the business and the building together, and how the term is set.
   • Working Capital And Lines Of CreditHow much cash to have on day one, and the SBA-approved ways to fund it.
   • Deals Over $5 MillionHow a $5M SBA loan and a conventional loan share the collateral to finance a bigger purchase.
   • Buying A Business With PartnersWho signs, who guarantees, how partners split the Down Payment and what lenders want to see.
   • Search Funds And Investor-Backed DealsHow searchers and independent sponsors use SBA loans with outside investors, and the rules that bind them.
   • Sources And UsesThe one table every lender asks for: where every dollar comes from and where every dollar goes.
6. 6
   Step 6

   Due Diligence And Underwriting

   Check the business inside and out while the lender underwrites you and the deal.

   • Due Diligence ChecklistWhat to check before you buy, what the SBA lender checks on its own, and what to do with what you find.
   • Quality Of Earnings ReportsWhen SBA requires a QoE, what it must include, who orders it and how its findings size your loan.
   • What SBA Lenders Look For In A BuyerThe buyer side of underwriting: experience, credit, cash, personal budget and the SBA rules every owner must meet.
   • SBA Acquisition Loan DocumentsThe full document list for an SBA acquisition: seller, buyer, deal documents and SBA forms.
   • Business Plan For An Acquisition LoanWhat lenders read in an acquisition business plan, what to include and how they treat your projections.
   • SBA Loan Approval ProcessHow an acquisition loan goes from application to approval to closing, and where SBA fits in.
7. 7
   Step 7

   Close The Deal

   From signed LOI to funded loan: the timeline, the purchase agreement, costs, taxes and the things that sink deals.

   • LOI To Closing TimelineA week-by-week path from signed LOI to funded loan, and the things that stretch it out.
   • Why Business Acquisitions Fall ApartThe seven reasons deals break between LOI and closing, and what you can do about each one.
   • Purchase Agreement BasicsThe key terms in an asset purchase agreement, and the ones an SBA lender reads closely.
   • Closing Costs When Buying A BusinessEvery closing cost in an SBA business purchase, what SBA limits, and how to roll them into the loan.
   • Tax Basics When Buying A BusinessAsset vs stock taxes, the price allocation, goodwill amortization and entity choice, in plain English.
   • Closing DayWhat you sign, how the money moves, and the handover checklist for the day you become the owner.
8. 8
   Step 8

   Own And Grow The Business

   The seller transition, your first months as owner, refinancing the seller note and buying your next business.

   • Seller Transition And ConsultingHow long the seller can help, in what role, and how to build a handover plan that works.
   • Your First 100 Days As OwnerA day-by-day plan for keeping staff, customers and cash steady after closing.
   • Refinancing A Seller NoteWhen a seller note from your purchase can be refinanced, the tests it must pass and how to set it up.
   • Add-On AcquisitionsWhen your company buys another in the same industry, SBA treats it as a Business Expansion, with softer rules.
   • SBA Acquisition GlossaryForty-two terms you will hear when buying a business with an SBA loan, explained in plain English.

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Also see: SBA Business Acquisition Loans · SBA Pari Passu Loans · Partner Buyout Loans · Closed Deals · Best SBA Lenders By Industry · Pre-Qualification Letter