SBA 7(a) is the most common acquisition financing tool — up to $5M (increasing to $10M post-July 2026), 10-year terms, seller financing counts as equity. Acquisition loans require a business valuation, 3 years of target business financials, a transition plan, and evidence of buyer industry experience.
The SBA 7(a) loan program is the dominant financing vehicle for small business acquisitions under $5M. SBA 7(a) is well-suited to acquisitions for several reasons: the 10-year maximum term (which can be extended to 25 years when real estate is included) reduces the monthly payment burden during the transition period; the SBA guarantee reduces the bank's risk on deals where the buyer lacks operating history with the acquired business; and SBA SOP 50 10 explicitly permits seller financing to count as the required equity injection — meaning a seller who agrees to carry 5–20% of the purchase price effectively provides the buyer's down payment.
Seller financing — where the seller agrees to carry a note for a portion of the purchase price — is a nearly universal component of SBA acquisition deals. Under SBA guidelines, seller financing that is on full standby (no principal or interest payments during the SBA loan term) can count as the buyer's equity injection. A typical SBA acquisition structure: SBA 7(a) covers 80–85% of the purchase price; seller financing covers 5–15% on standby; buyer injects 10% cash. The seller's willingness to carry a standby note signals confidence in the business's future performance and gives the lender comfort that the seller has skin in the outcome of the transition. Typical seller note terms run 3–7 years at 5–8% interest.
Acquisition loan underwriting evaluates both the buyer and the target business. Lenders typically require: (1) Business valuation — an independent third-party appraisal by a Certified Business Appraiser (CBA) or Certified Valuation Analyst (CVA); (2) Target business financials — 3 years of business tax returns, profit and loss statements, and current year-to-date financial statements; (3) Transition plan — a written plan describing how the buyer will retain key employees, maintain customer relationships, and operate the business during transition; (4) Buyer experience — documented industry or management experience; SBA and bank lenders want evidence that the buyer can actually run the business being acquired; (5) Personal financial statements — the buyer's personal credit, personal tax returns, and a personal financial statement. Weak buyer experience is the most common reason acquisition loans are denied.
A buyer with 12 years of HVAC management experience purchases a residential HVAC service business with $1.8M in annual revenue for $720,000. The SBA 7(a) loan covers $576,000 (80%); the seller carries a $72,000 note on standby (10%); the buyer injects $72,000 cash (10%). The acquisition loan has a 10-year term, and the seller's standby note converts to payment after year 5.
A business valuation is not optional for SBA acquisition financing — SBA SOP 50 10 requires an independent business valuation for acquisitions above $250,000. Using the seller's own financial projections as the valuation basis is not acceptable. Budget $3,000–$10,000 for a qualified independent valuation before applying.