How To Get a Loan To Buy a Business: An Acquisition Financing Guide

Can You Get a Loan To Buy an Existing Business?

Yes, and acquisition lending is one of the most active corners of small business finance right now. Most lenders will fund a business purchase if three things check out: your industry experience, the target business's cash flow, and your personal credit. Deal economics carry more weight than your own balance sheet on most acquisition loans, because the lender is underwriting the cash flow of the company you're buying, not just your wallet.

If you already run a business in the same space, you're in the easiest seat. Lenders treat industry experience as the strongest predictor of post-close survival. If you're crossing into a new industry, you can still get financed, but you'll need a stronger case, often in the form of a transition consulting agreement with the seller, a key employee staying on, or a personal guarantee tied to other assets.

The target's cash flow matters because most acquisition loans are sized to its debt service coverage ratio (DSCR). Lenders look at whether the business plus your personal income generates enough cash to comfortably cover the new payment, with a cushion on top. Conventional banks typically want a tighter cushion than SBA Preferred Lenders.

The Boomer Sell-Off Is Reshaping the Acquisition Market

A wave of retiring small business owners is putting the largest pool of established business inventory in U.S. history on the market. According to Project Equity, more than half of all privately held U.S. businesses with employees have owners over age 55, and the Silver Tsunami of retirements is creating an unusually deep pipeline of businesses for sale to entrepreneurs who are ready to buy rather than build.

This means the seller pool is bigger, but well-priced, quality deals still draw lots of offers. Financing-contingent buyers lose to buyers who arrive with a pre-approved loan letter and a clean due diligence file. The SBA Preferred Lenders my team works with prioritize buyers who reach the letter of intent (LOI) stage with a financing partner already lined up.

Types of Loans for Buying a Business

Several financing options fund business acquisitions, and the right loan options depend on the size of the deal, whether real estate is included, and how flexible the seller is willing to be on terms. Buyers usually combine two loan options rather than relying on one.

SBA 7(a) Loans

The SBA 7(a) loan program is the default for most small business acquisitions under $5 million.

The program is offered through banks and non-bank lenders approved by the U.S. Small Business Administration, which guarantees a portion of the loan so banks and approved non-bank lenders can offer longer repayment terms and lower down payments than they would on a conventional loan.

The SBA also runs SBA Microloans (up to $50,000) for very small deals, but acquisitions almost always land in 7(a) territory because the loan amounts are larger.

Key things to know:

• Maximum loan amount: $5 million (Standard 7(a); 7(a) Small caps at $350,000)

• Maximum term: 10 years for goodwill or working-capital portions; up to 25 years when real estate is included

• Down payment: as little as 10%

• Eligible uses include a complete or partial change of ownership, plus working capital, real estate, equipment, and acquisition-related refinancing

The 7(a) rate is variable, set by the lender within an SBA-imposed cap. The SBA also allows part of your equity contribution to come from a seller note on full standby for the life of the loan, which means the seller can effectively carry a portion of your down payment. That structure tightens the cash you need at closing without changing the SBA's required equity floor.

Clarify works with SBA Preferred Lenders on 7(a) acquisition loans up to $5 million, with APRs starting at 6.75% and no down payment required when the deal structure qualifies.

SBA 504 Loans (When the Deal Includes Real Estate)

The SBA 504 program funds major fixed-asset purchases, primarily commercial real estate and heavy equipment. For acquisitions where the bulk of the purchase price is a building, an SBA 504 loan can be a better fit than a 7(a) thanks to its longer fixed-rate portion and lower blended rate. The CDC debenture portion of a 504 caps at $5.5 million, offers 10, 20, or 25-year maturity terms, and carries a fixed rate pegged to the 10-year U.S. Treasury, all reasons it suits buyers acquiring a business with a meaningful real estate or heavy-equipment component.

Conventional Bank Loans

A conventional bank acquisition loan, sometimes called a commercial term loan, is the route for established buyers with strong credit and a target business with several clean years of financial statements. Conventional banks lend most comfortably to borrowers with significant business and personal assets, and they typically require 20% to 30% down, with terms typically shorter than an SBA loan and either fixed or variable rate options. The advantage is speed: a conventional loan can close faster than an SBA loan, where SBA acquisition deals often take about 60 days.

Seller Financing

Seller financing means the current business owner accepts a promissory note for part of the purchase price instead of full cash at closing. It is common in small business deals because it keeps the seller engaged through the handoff and reduces the bank-side debt you need to qualify for. Seller financing typically covers 5% to 60% of the asking price, with interest rates negotiated directly between buyer and seller. On an SBA 7(a) deal, a seller note placed on full standby counts toward the equity injection requirement.

Business Lines of Credit (for Working Capital After Close)

A business line of credit isn't usually the primary acquisition vehicle, but it sits well next to the main loan as post-close working capital. Once you close, you'll need cash for the first payroll cycle, inventory restocks, and any unforeseen operating gaps. A revolving line gives you that cushion without taking it out of the acquisition loan itself. Clarify's business line of credit reaches up to $5 million with APRs starting at 6%, drawn against your revenue rather than pledged collateral.

Secured Loans

Secured loans are backed by collateral, such as commercial real estate, equipment, or inventory. The main draw is a lower rate than an unsecured loan, since the lender has recourse to the asset if the loan defaults. Most SBA 7(a) acquisition loans are partially secured by available business assets and a personal guarantee from any 20%-or-more owner of the buying entity. Those owners become personal guarantors on the loan.

How To Get a Loan To Buy a Business

The acquisition financing process moves through four steps, and the order matters. Lenders won't quote a real term sheet until you have a target identified, a letter of intent, and a path to a clean valuation.

Choose an Acquisition Lender

Not every lender funds acquisitions. Some banks only handle working capital. Some non-bank lenders only handle specific industries. Look for a lender (or broker) with SBA 7(a) Preferred Lender status and a track record on deals for your size and industry. Fast funding and clear loan terms are the two green flags. Clarify works with more than 75 lenders nationally, and our acquisition advisers shop a deal to the lenders most likely to fund it.

Prepare a Letter of Intent and Valuation

The letter of intent (LOI) is the document that locks the seller to a price and an exclusive negotiation window. It also lets lenders open a real underwriting file. Before the LOI, your lender can only ballpark a term sheet. After the LOI, they can pull a valuation, order a quality-of-earnings review when the deal warrants it, and start due diligence. The valuation comes from a third party (the bank's appraiser on SBA deals) and is based on the business's trailing 12 to 36 months of cash flow, the asset base, and comparable transactions. A clean business plan covering your operating thesis for the company helps the underwriter sign off faster.

Gather Your Financing Documents

For a business acquisition loan, you'll need:

• Your personal tax returns (three years)

• Personal financial statement

• Resume showing relevant industry experience

• Target business tax returns (three years)

• Target business profit and loss, balance sheet, and accounts receivable aging

• Year-to-date interim financials for the target

• The fully executed letter of intent

• Source-of-funds documentation for your down payment, including statements from your business bank account

Submit the Application and Move to Due Diligence

Once the loan application is in, the lender will issue a term sheet (or a soft commitment) within one to two weeks. From there, you and the lender's underwriter run parallel tracks. The underwriter verifies the target's financials and your buyer profile, and you run your own due diligence on the business. Closing typically averages about 60 days from the LOI on an SBA deal; a conventional acquisition loan can close faster.

What Lenders Consider in a Business Acquisition Loan

Different lenders have different underwriting boxes and eligibility criteria, but the pieces below shape your eligibility on almost every acquisition file. Your credit history shows up alongside the target business's financials.

Your Industry Experience

If you've run a business in the target industry for two-plus years, you check the most important underwriting box on an SBA 7(a) acquisition loan. Without direct experience, lenders look for adjacencies (a restaurant operator buying a bar, an HVAC tech buying an HVAC company), a transition consulting agreement with the seller, or a key employee staying on for 12-plus months.

The Target Business's Cash Flow

Underwriters spread the target business's last three years of tax returns and add back the current owner's discretionary expenses (owner salary, family payroll, vehicle leases, one-time costs) to arrive at the seller's discretionary earnings (SDE). Your acquisition loan payment has to fit inside that cash flow with room left for working capital.

Your Personal Credit Score

SBA lenders typically want a personal FICO score in the high 600s, with most banks landing around 680 as the creditworthiness floor. Business credit on the target company is reviewed separately, and loan repayment history on any active business debt gets pulled into your file. Conventional acquisition lenders typically want 700 or higher. Clarify's SBA program starts at a 640 personal credit score, which is more flexible than most traditional banks.

The Loan Amount and Equity Injection

Two numbers move together on every acquisition deal: the loan amount and the equity injection. The SBA's minimum equity injection on a complete change of ownership is the floor. On larger deals, lenders often ask for 15% to 20% to keep buyer skin in the deal proportional to risk.

Minimum Qualifications

$10,000 in monthly revenue

Your business must earn at least $10K per month in a business bank account.

500+ credit score

You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.

Minimum six months in business

Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.

Have a business bank account

Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.

Start Application

A Due Diligence Checklist for Acquisition Financing

Due diligence is the 30- to 60-day window inside the LOI where you verify everything the seller has told you. Banks won't close until your due diligence file looks clean, so think of this checklist as both buyer protection and a lender-readiness exercise.

Financial Review

• Three years of business tax returns (confirm they match the seller's presented financials)

• Three years of profit and loss statements and balance sheets

• Trailing 12-month profit and loss broken out by month

• Accounts receivable aging report

• Accounts payable aging report

• Bank statements (12 months)

• Customer concentration report (revenue share of the top five customers)

Legal Review

• Corporate documents (articles of incorporation, operating agreements, bylaws, stock ledger)

• Real estate leases, with assignment language reviewed

• Equipment leases

• Intellectual property assignments and registrations

• Pending or threatened litigation, regulatory issues, or audits

• Outstanding liens (Uniform Commercial Code (UCC) filings ordered through your attorney)

Operational Review

• Employee roster with tenure, role, and compensation

• Key-person dependencies (which employees might leave if the business sells)

• Vendor and supplier contracts (assignment clauses)

• Software and technology stack, especially software as a service (SaaS) contract renewals

• Insurance policies and recent claims history

Market Review

• Industry trends affecting the target's customer base

• Top three to five direct competitors and the target's position against them

• Pricing power (when did the target last raise prices, and what happened)

• Regulatory or technology risks on the 24-month horizon

Finance Your Business Acquisition With Clarify

Business financing for acquisitions rewards preparation, not paperwork volume. Buyers who reach the letter of intent with a financing partner, a tight valuation argument, and a clean due diligence file close faster and at better terms than buyers who shop financing reactively. The SBA's 2026 ownership-change rules favor small-business buyers, and the boomer-seller pool gives prepared buyers an advantage they didn't have a decade ago.

If you're looking into an acquisition this year, Clarify Capital and an acquisition adviser will show you matched term sheets from our SBA Preferred Lenders within one to two business days.

FAQs About Loans To Buy a Business

These are the four questions I get asked most often by buyers preparing their first acquisition deal.