Buying a business with a 7(a)

The structure lenders expect

Every 7(a) acquisition has three layers: your equity injection (minimum 10% of total project costs), optional seller financing, and the SBA loan covering the rest. The loan runs 10 years — 25 when real estate is at least 51% of proceeds — at a variable rate capped at Prime + 3% over $350,000. Every 20%+ owner signs an unlimited personal guarantee.

What underwriting checks

The business's real earnings.The seller's financials get verified against IRS tax transcripts, a check reinstated in 2025. If the returns don't support the P&L, the deal reprices or dies; add-backs survive only with invoices and payroll records behind them.

An independent business valuation.The lender orders a third-party valuation, and any purchase amount above it can't be financed with the SBA loan. Pay over the appraisal and the difference comes out of your pocket or the seller's price.

Debt service coverage.Loans up to $350,000 carry a codified 1.1x minimum coverage ratio; larger loans typically underwrite to 1.15–1.25x. The test is the business's operating cash flow against all of its debt service, including the new loan.

You.Lenders weigh industry or management experience, personal credit, post-close liquidity, and a transition plan. There's no SBA-wide score minimum since the SBSS sunset (March 2026), but most want mid-600s or better.

Seller notes: the rule that changed

A seller note still reduces the SBA loan, improves coverage, and shows the seller believes the business survives without them. Your minimum 5% in hard cash stands either way.

Partial buyouts and partner buyouts

Buying part of a business must be an equity purchase — asset purchases don't qualify — and every equity holder, including a seller rolling equity, must personally guarantee for at least two years. Partner buyouts where the loan finances more than 90% of the price require the remaining owners to certify 24+ months of active participation at the same or higher ownership. Flag either structure on your first lender call.

The five common deal-killers

Five things kill 7(a) acquisitions: 1) seller tax returns that don't match the offering financials, 2) a valuation below the agreed price, 3) coverage under 1.1–1.15x at the actual price and rate, 4) injection money that fails verification — lenders trace two months of bank statements, and 5) ownership groups that fail the 95% citizen/LPR test.

Check the five deal-killers before you write the LOI.

All five are visible before you write an LOI. The pre-qualification worksheet on our SBA-friendly listings checks them — seven questions against the deal's actual financials.