How do you finance buying an existing business?

The acquisition process in eight steps

Buying an existing business follows a defined sequence: (1) Identify targets through business brokers, business-for-sale listing platforms, or direct outreach; (2) Sign an NDA and receive the Confidential Business Review (CBR) or information memo; (3) Submit a Letter of Intent (LOI) — a non-binding term sheet that establishes price, structure, and exclusivity period; (4) Conduct due diligence — 3 years of financial statements, tax returns, leases, customer contracts, employee agreements, and a full debt schedule; (5) Commission a business valuation; (6) Secure financing; (7) Negotiate and execute the purchase agreement; (8) Close and transition.

Due diligence: what to verify before you commit

Due diligence is where acquisitions succeed or fail. The minimum financial package: 3 years of P&Ls, 3 years of business tax returns (verify against P&Ls), a current balance sheet, accounts receivable aging, accounts payable aging, a complete debt schedule, and copies of all material contracts (leases, supplier agreements, customer contracts). Non-financial due diligence includes: employee agreements and any non-compete obligations, environmental site assessments for real estate, pending litigation, and regulatory licenses that transfer (or don't) with the business.

Business valuation: how price is determined

Small business valuations typically use two methods: (1) Revenue multiples — common for service businesses where revenue is the primary driver; typical range 0.3x–1.5x annual revenue depending on profitability and growth; (2) EBITDA multiples — more common for businesses with $500K+ in EBITDA; typical range 3x–6x for Main Street businesses. Sellers often anchor on the higher of the two; buyers anchor on the lower. A qualified business appraiser or CPA with business valuation experience provides a defensible number for SBA loan underwriting.

The revenue and EBITDA multiples above are the mechanics of pricing a deal — reading whether a specific target's multiple is actually justified (quality of earnings, customer concentration, owner dependency) is a separate skill. ClearValue Books' answer on the best book on business valuation covers that evaluation framework for buyers preparing to negotiate against a seller's asking multiple.

SBA 7(a) acquisition financing

SBA 7(a) is the dominant financing structure for business acquisitions under $5 million. Typical terms: 10% down payment from the buyer, up to 90% SBA-guaranteed financing, 10-year term, rates at WSJ Prime + 2.75%–3.5% depending on loan size. Seller financing of 5–10% of the purchase price (subordinated, on standby for 24 months per SBA rules) is often required alongside the SBA loan if the buyer's injection is limited. The SBA has published guidance on acquisition loan structures and eligible businesses.

Apply at ClearValue Lending

ClearValue Lending routes SBA 7(a) business acquisition loan applications to the funding partners best matched to it. One application. If you have a target business, a signed LOI, and due diligence underway, submit your application and get matched based on the acquisition profile — deal size, industry, and borrower financials.