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.
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.
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.
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).
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.