Finance term
Acquisition Loan (Business Purchase)
Also known as: business acquisition loan, business purchase loan, buy a business loan
Definition
An acquisition loan finances the purchase of an existing business — SBA 7(a) is the most common vehicle — and typically requires a business valuation, seller documentation, and often a seller-financing component for the down payment gap.
Detailed explanation
Buying an existing business requires specialized financing because the collateral is not a physical asset but a going concern — its value derived from cash flows, customer relationships, and intangibles. SBA 7(a) loans are the dominant vehicle for business acquisitions up to $5 million, covering up to 90% of acquisition price and allowing up to 10-year terms (or 25 years if real estate is included).
Key requirements for SBA 7(a) acquisition loans: (1) business valuation by a qualified appraiser or CPA — the loan amount must be justified by business value; (2) complete financials of the target business for 3 years (tax returns, P&L, balance sheets); (3) seller must provide representations about debt, litigation, and material events; (4) typically 10% buyer down payment required (may be partially funded by seller financing on standby); (5) buyer must demonstrate relevant industry or management experience.
Seller financing (where the seller takes back a note for part of the purchase price) is common in business acquisitions — lenders often require or encourage it because it signals the seller's confidence in the business's future performance. An SBA 7(a) plus 10-15% seller note on standby can reduce the buyer's required cash equity significantly.
◈ Worked example
- A buyer acquires a landscaping business for $600,000. SBA 7(a) loan: $540,000 (90%). Buyer equity: $30,000 (5%). Seller note: $30,000 on standby (5%). Business valuation supports $600,000 based on 3.5x EBITDA.
- Business acquisition with real estate: $1.2M business value + $800,000 commercial property. SBA 504 for the real estate component; SBA 7(a) for the business goodwill and equipment — combined financing up to $2M.
- Key documentation for business acquisition: 3 years of target business tax returns, lease assignment, franchise agreement (if applicable), asset purchase agreement, list of included assets, and seller's personal financial statement.
Common questions
The most-asked questions about Acquisition Loan (Business Purchase) — answered straightforwardly.
How is a business acquisition loan different from a startup loan? +
An acquisition loan is backed by an operating business's existing cash flow and asset base — lenders can underwrite based on historical performance. A startup loan relies on projections and personal credit, making it higher risk and harder to fund. Most lenders strongly prefer acquisition loans over true startup financing.
What down payment is required to buy a business? +
SBA 7(a): minimum 10% buyer equity injection. Some lenders require 15-20% depending on the business type and goodwill percentage. The buyer equity can come from personal funds or a combination of personal equity and seller financing (if the seller note is on standby and meets SBA requirements).
How long does an SBA business acquisition loan take? +
Typically 60-90 days from complete application to funding. Using an SBA Preferred Lender (PLP) — who can approve internally without SBA review — can shorten the timeline. Having complete documentation ready (3 years of business returns, purchase agreement, valuation) significantly speeds up the process.
Further reading
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