An SBA 7(a) loan is the most common and best-fit financing for buying an existing business: it offers long terms, competitive rates, and is widely used for business acquisitions and partner buyouts. Conventional acquisition loans and seller financing can supplement or substitute. Lenders underwrite the target's cash flow (debt-service coverage) heavily — the acquired business must support the loan.
Buying an existing business is one of the most common uses of the SBA 7(a) loan program. It offers long amortization and competitive rates, which matter for acquisitions because the loan is large relative to the buyer's resources and the long term keeps payments serviceable from the acquired company's cash flow. Lenders underwrite the target's historical cash flow heavily — specifically its debt-service coverage ratio (DSCR), which measures whether the business generates enough cash to cover the new loan payment with a cushion.
Acquisition lenders look at the target's financials more than the buyer's projections: verified tax returns, profit-and-loss statements, and a DSCR that demonstrates the business can service the debt (commonly a 1.25x minimum). They also assess the buyer's relevant experience, the purchase price relative to the business's earnings (a reasonable multiple), and the equity injection — SBA typically expects the buyer to contribute a portion of the purchase price. A clean target with steady cash flow and a fair price is far more financeable than a turnaround at an aggressive multiple.
Seller financing — where the seller carries a portion of the purchase price as a note — often supplements an SBA or conventional acquisition loan and can satisfy part of the buyer's equity requirement, signaling the seller's confidence in the business. Conventional acquisition loans exist for strong buyers and targets but generally have shorter terms than SBA. Structure the deal so the combined debt service fits the target's cash flow with margin to spare.
A buyer is acquiring a profitable HVAC company for $900,000. An SBA 7(a) loan matched through ClearValue Lending finances most of the purchase with long amortization, underwritten on the target's steady cash flow and debt-service coverage, with the buyer's equity injection and some seller financing completing the structure. The buyer applies once.