SBA 7(a) loans can be an affordable option when you want to buy an existing business or increase ownership in your current business — as long as you can qualify.
Updated Jul 31, 2023 · 3 min read Written by Randa Kriss Lead Writer Randa Kriss
Lead Writer | Small business
Randa Kriss is a lead writer and NerdWallet authority on small business. She has nearly a decade of experience in digital content. Prior to joining NerdWallet in 2020, Randa worked as a writer at Fundera, covering a wide variety of small-business topics and specializing in the lending and banking spaces. Her work has been featured in The Washington Post, The Associated Press, MarketWatch and Nasdaq, among other publications. She has also hosted a webinar as part of the SBA's 2024 National Small Business Week Virtual Summit. Randa is passionate about helping small-business owners make educated financial decisions, especially when it comes to affordable funding. She is based in Chicago.
Assigning Editor Sally Lauckner
Assigning Editor | Small business
Sally Lauckner is an editor on NerdWallet's small-business team. She has over 15 years of experience in print and online journalism. Before joining NerdWallet in 2020, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content and specializing in business financing. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She is based in New York City.
Fact Checked
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Whether you’re buying a new business or buying out partners from your current company, you’ll likely need a small-business loan to help you finance the acquisition. SBA 7(a) loans — the most popular of the U.S. Small Business Administration loans — can be a good option for business acquisitions, offering competitive interest rates and long repayment terms.
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
SBA 7(a) loans are the most flexible type of SBA loan and can be used for a variety of purposes, including buying a business. Although bank and online loans can also be used as business acquisition loans, here are some reasons why you might prefer an SBA loan:
Large loan amounts. SBA 7(a) loans are available in loan amounts of up to $5 million. Long repayment terms. These loans have repayment terms of up to 25 years.Competitive interest rates. SBA loan rates are subject to maximums set by the SBA. Currently, SBA 7(a) loan rates range from 11.5 % to 15 %.
Government guarantee. The SBA guarantees 85% of your loan if it’s up to $150,000 and 75% if it’s more than $150,000. This security makes lenders less hesitant to work with small businesses.
Easier to qualify for than bank loans. Although you’ll likely need good credit and multiple years in business to get an SBA loan, these loans are typically easier to qualify for than standard bank loans.
Express option. Part of the 7(a) loan program, SBA Express loans can also be used for business acquisitions. Although these loans have smaller funding maximums (up to $500,000), they are faster to fund — lender-approved applications receive a response from the SBA within 36 hours.
The SBA refers to a business acquisition as a “change of ownership,” which includes the purchase of an existing business or an increased ownership share in your current business. You can use an SBA 7(a) loan for ownership changes in the following scenarios:
A small business purchases 100% of the ownership interest in another business. An individual who is not an existing owner purchases 100% of the ownership interest in the business. A small business acquires another small business through an asset purchase.An Employee Stock Ownership Plan (ESOP) or equivalent trust purchases a controlling interest (51% or more) in the employer small business.
One or more current owners purchases the entire interest of another current owner, resulting in 100% ownership of the business by the remaining owner(s) [0]
U.S. Small Business Administration . Lender and Development Company Loan Programs SOP 50 10 7. Accessed Jul 31, 2023.
The SBA also requires that any change of ownership promotes the development and/or preserves the existence of the business.
In order to qualify for an SBA business acquisition loan, you’ll need to meet eligibility criteria from the SBA as well as your lender.
First, you’ll need to meet general SBA loan requirements , including:
You must be a for-profit business. You must be located and doing business in the U.S. or its territories. You must be operating in an eligible industry. You must be a small business, as defined by the SBA. You need to have tried to find other forms of financing before turning to an SBA loan. As a business owner, you must have invested time and money into the business.When an SBA loan is used to purchase a business or buy out partners, the SBA also requires one of the following, depending on which applies to your situation:
For new ownership. An equity injection of at least 10% of the total project costs. This includes all costs required to complete the change of ownership, regardless of the source of funds.
For a change between existing owners. If the 7(a) loan will finance more than 90% of the purchase price of a partner buyout, the remaining owner(s) must certify that they have been actively participating in the business operation and held the same or an increasing ownership interest in the business for at least the past 24 months. In addition, the business balance sheets for the most recently completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership. If the lender cannot document that both of these requirements are met, the remaining owners must contribute cash equal to at least 10% of the purchase price of the business [0]
U.S. Small Business Administration . Lender and Development Company Loan Programs SOP 50 10 7. Accessed Jul 31, 2023.
SBA lenders, typically banks and credit unions, set their own minimum qualifications, but generally use the following criteria to evaluate loan applications:
Personal credit history. You’ll need to have good credit to qualify for an SBA loan. Lenders will usually want to see a personal credit score of 690 or higher.
Time in business. Most SBA lenders will require that you have at least two years in business. You should have an established company or be looking to buy an established company in order to qualify for a business acquisition loan.
Business finances. Lenders will want to see that you have strong business finances that show your ability to repay the loan, including annual revenue and cash flow projections. The lender will also want to see your financial history to ensure that you can responsibly manage the business acquisition while taking on new debt.
Collateral. Because business acquisitions can be complex and expensive, it’s likely that your SBA lender will ask for collateral to secure your loan. Real estate, equipment and inventory can all be used as forms of collateral .
If you think an SBA loan is a good fit for your business acquisition, you’ll want to start the application process by finding a lender. You might start your search with a local bank or credit union in your area, especially if you have a preexisting relationship with that institution.
You can also use the Lender Match tool on the SBA’s website. With the Lender Match tool, you submit some basic information about your business — and in two days, you receive an email with possible lender matches.
Once you’ve found a lender, you’ll be able to work on preparing and submitting your application. Although the required documentation can vary from lender to lender, you’ll typically need to provide:
SBA Form 1919, Borrower Information Form. Financial statement ( SBA Form 413 ). SBA Form 148, Unconditional Guarantee (or the lender’s equivalent).Business financial statements, such as balance sheets, profit and loss statements, and projected cash flow statements.
Ownership and affiliations Business certificate or license. Loan application history. Income tax returns. Resumes for each business owner. Business overview and history. Business lease. Existing debt schedule, if applicable. Collateral information. A current business valuation.An analysis detailing how the change of ownership will promote the development and/or preserve the existence of the business.
Business, stock and asset purchase agreements. Seller’s financial information.SBA acquisition loans — whether used to purchase an existing business or buyout partners — will require additional documentation, such as a business valuation and asset purchase agreements, that may not be necessary for other SBA loans. Your lender will be able to help you complete the application and answer any questions you have about the paperwork you need.
After you’ve submitted your application, you’ll wait for approval. If your SBA lender is a Preferred Lending Partner, or PLP, you may receive a decision faster — as these lenders can make credit decisions without sending applications through the SBA. Overall, time to funding typically ranges from 30 to 90 days.
If you're ready to get an SBA loan for your business acquisition: Explore the best SBA lenders to start the application process.
If you want to consider other options: Read our breakdown of the best business acquisition loans . Frequently asked questions Can an SBA loan be used to buy a business?Yes, both SBA 7(a) and SBA Express loans can be used for business acquisitions. Funds from these loans can be used to purchase an existing business or to buy out partners from your current business.
How long does it take to get an SBA loan to buy a business?Generally, it can take anywhere from 30 to 90 days to get an SBA loan. The timeline varies based on your loan type and lender, among other factors. With the additional documentation required for business acquisitions, these loans may take longer to fund — although opting for an Express loan can speed up the process.
Can you use an SBA 504 loan for business acquisition?SBA 504 loans can be used for the acquisition of fixed assets and in very specific scenarios, projects that result in a change of ownership. These loans are typically not used in business acquisitions, however.
Can an SBA loan be used to buy a business?Yes, both SBA 7(a) and SBA Express loans can be used for business acquisitions. Funds from these loans can be used to purchase an existing business or to buy out partners from your current business.
How long does it take to get an SBA loan to buy a business?Generally, it can take anywhere from 30 to 90 days to get an SBA loan. The timeline varies based on your loan type and lender, among other factors. With the additional documentation required for business acquisitions, these loans may take longer to fund — although opting for an Express loan can speed up the process.
Can you use an SBA 504 loan for business acquisition?SBA 504 loans can be used for the acquisition of fixed assets and in very specific scenarios, projects that result in a change of ownership. These loans are typically not used in business acquisitions, however.
About the authorYou’re following Randa Kriss
Visit your My NerdWallet Settings page to see all the writers you're following.
Randa Kriss is a small-business writer who joined NerdWallet in 2020. She previously worked as a writer at Fundera, covering a wide variety of small-business topics including banking and loan products. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona College. See full bio.
On a similar note.
Best Small-Business Loans 10 Types of Business Loans Best Business Loans for Bad Credit MORE LIKE THIS Small-Business Loans Small BusinessA business line of credit can finance short-term expenses, like payroll or inventory. Both traditional and online lenders offer business lines of credit.
Use NerdWallet’s business loan calculator to estimate monthly principal and interest costs based on the loan amount, loan term and APR.
NerdWallet Home Page Finance Smarter Credit Cards Financial Planning Financial News Small BusinessDownload the app
Disclaimer: NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty. When evaluating offers, please review the financial institution’s Terms and Conditions. Pre-qualified offers are not binding. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly.
NerdUp by NerdWallet credit card: NerdWallet is not a bank. Bank services provided by Evolve Bank & Trust, member FDIC. The NerdUp by NerdWallet Credit Card is issued by Evolve Bank & Trust pursuant to a license from MasterCard International Inc.
Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.
NerdWallet Compare, Inc. NMLS ID# 1617539
California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812
Insurance Services offered through NerdWallet Insurance Services, Inc. (CA resident license no.OK92033) Insurance Licenses
NerdWallet™ | 55 Hawthorne St. - 10th Floor, San Francisco, CA 94105
