How to Finance a Small Business Acquisition

Updated October 2026 for SBA SOP 50 10 8.1 and the latest BizBuySell market data.

According to BizBuySell, 2,132 small businesses changed hands in the United States in Q3 2026, and the median sale price was $350,000.

Most searchers looking to acquire a small business probably don’t have $350,000 in cash laying around to pay cash for an acquisition, and even if they did, it might still make sense to finance at least a portion of the purchase price of the business.  In this article I am going to walk through how to finance a small business acquisition and answer some key questions related to financing options. 

In order to answer some of these questions I am going to be using our Acquisition Financial Projection Template to demonstrate.  With that, let’s dive in! 

Using an SBA Loan for an Acquisition

For most small business acquisitions an SBA - Small Business Administration - loan is a great option to finance an acquisition.  The SBA 7a program is probably the most popular program to finance an acquisition.  For very small acquisitions you might check out the SBA Microloan program which would be even faster and easier for you.

The rules for SBA acquisition loans changed on October 1, 2026, when SBA SOP 50 10 8.1 took effect (Starfield & Smith has a good summary). Here are the key things you need to know about using an SBA 7(a) loan to buy a business today:

• The maximum SBA 7(a) loan size is $5 million.
• You need an equity injection of at least 10% of total project costs, and at least half of it has to come from your own cash or other “unlimited” sources, such as a gift.
• A seller’s note can cover the other half of the injection, but only if it is on full standby, with no principal or interest payments, for the life of the SBA loan. That means the most you can typically finance between the SBA loan and a standby seller note is about 95%.
• Business acquisition loans have a maximum term of 10 years. A longer, blended term is possible only when part of the loan finances real estate.
• The lender has to show the business’s historical cash flow covers the new debt: at least 1.25x for a first-time acquisition and 1.15x when an existing business buys another business in its industry. Projections can’t be used to meet this test.
• Every SBA-financed acquisition needs an independent business valuation, and total debt can’t exceed that valuation.
• Most deals with a business purchase price of $3 million or more need a Quality of Earnings report.
• In a standard acquisition the seller has to fully exit. They can stay on as a consultant for up to 24 months, but not as an owner or employee.
• You will need to sign a personal guarantee for an SBA 7(a) loan.
• Expect the lender to take available business and personal collateral, which can include your personal residence.

Of course you can reach out to your local bank to talk more details, but these are some of the key highlights. 

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How to Get a Business Acquisition Loan

As mentioned above the SBA 7a program is a great way to finance a small business acquisition.  The process to secure an SBA 7a loan is to talk to a local bank that offers SBA loans, or you might want to connect with an SBA lender that specializes in acquisitions like Live Oak Bank. 

The SBA is not a direct lender, so you can’t reach out to the SBA for a loan directly, you will need to work through a bank that offers SBA loan products.  

You can expect that you will need to have a good credit history, a reasonable amount of collateral, and historical financials showing the business already generates enough cash to cover the new loan. Projections are still useful for planning, but for an acquisition the lender will qualify the deal on the business’s past results.

SBA Loans for Buying a Business

We put together and analyzed SBA loan data over the last 5 and a half years (2018 - 2023) specifically surrounding SBA loans used to buy a business.  We wanted to share that loan data with you as you consider SBA for financing your acquisition. For more recent numbers, our free SBA Lender Finder lets you filter current SBA loan data by lender, location and industry.

For those financing a small business acquisition, a QoE Sniff Test could be the key to unlocking the financial insights necessary for a successful purchase.

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How Many Businesses are Acquired with an SBA Loan Each Year?

There are roughly 5,000 businesses acquired each year in the United States using an SBA loan as part of the acquisition financing.  You can see the annual trends below. 

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Top SBA Lenders for Buying a Business

Live Oak Bank is the top SBA Lender for business acquisitions.  Over the last 6 years Live Oak Bank has closed 2,524 SBA 7a loans for acquisitions which is over three times the number of loans of the second ranked SBA lender.

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Average SBA Loan Amount for Buying a Business

The average SBA loan amount for buying a business was $1,045,193 over 2018 - 2023.  Although you can borrow up to $5 million through the SBA 7a program, the average loan amount is just over $1 million for business acquisitions. 

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Top SBA Lenders by Industry  

Although Live Oak Bank and Huntington Bank top the list in SBA lending with a specific focus on business acquisitions, you will find that some banks specialize in certain industries.  So depending on what industry you are looking to buy a business in, you might want to approach a different lender.  For example, if you are looking to buy a car wash business, Live Oak Bank does not even appear in the top 10 SBA lenders for car wash acquisition loans.  Metro City Bank was the top SBA Lender for car wash acquisitions over 2018 - 2023.  You can see the top 10 car wash acquisition lenders below:

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Does My Business Cash Flow? 

The SBA and any bank lender is going to want to make sure that your business or the business that you propose to acquire can cash flow.  What does it mean to cash flow?  It means that the business should generate enough cash to pay all expenses as well as repay the loan.  We have a free cash flow template that you can download and use to help you determine whether your business ought to be able to cash flow the proposed acquisition loan.  Our Acquisition Financial Model will probably work even better if you have existing financials from the seller, since it lets you start from the business’s actual results and calculate your debt service coverage ratio. For an acquisition, the SBA now measures that ratio on historical results, and a first-time buyer needs at least 1.25x to meet the cash flow requirements.

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What is Goodwill in a Business Acquisition?

Goodwill is the premium that the buyer pays above the book value of the business.  For example, if the business you are acquiring has assets of $1,000,000, liabilities of $500,000 that means it has an equity value of $500,000.  If you pay $750,000 to acquire the business that technically has an equity value of $500,000, that $250,000 premium is considered goodwill.  You can see below that our acquisition financial projection template helps you calculate the goodwill for your business acquisition. 

How to Calculate Goodwill in a Business Acquisition?

As seen in the image above in order to calculate goodwill for a business acquisition you need to take the purchase price minus the net asset value of the business.  

The net asset value of the business is equal to all assets minus all liabilities that will be assumed as part of the acquisition.  As you can see in our template we calculated goodwill as follows:

Fair value of fixed assets acquired

+ Accounts Receivable

+ Inventory

= Total value of assets acquired

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- Accounts Payable assumed in acquisition

- Other debts assumed in acquisition

= Value of Net Assets

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Then to calculate goodwill we take the following

Purchase Price

- Value of Net Assets

= Goodwill

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Can I Finance Goodwill in a Business Acquisition? 

It can be difficult to get a loan to cover the goodwill portion of a business acquisition.  Why?  Because lenders like to have collateral, so if part of the acquisition is to purchase assets that can be used as collateral for a loan it will often be easier to finance that portion of the acquisition, but the goodwill portion by its very nature does not provide the lender with collateral.  You might be able to find a lender that is willing to finance goodwill because you pledge additional personal collateral like a home, but sometimes you will need to find another solution.  One way to finance goodwill in a business acquisition is with a seller’s note. 

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What is a Seller’s Note?

A seller note is when a seller agrees to receive some portion of the purchase price of the business through a series of payments.  Often this will be treated as a loan where the seller can earn interest on the portion of the purchase price that is financed with a seller note.  An example would be a $1,000,000 purchase with a $900,000 SBA loan, $50,000 of the buyer’s own cash and a $50,000 seller note. 

One thing you need to know about SBA loans: if you want the seller note to count toward your equity injection, it has to be on full standby to the SBA loan.

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What does it mean for a Seller Note to be on Full Standby?

This means that the buyer can not make any payments, principal or interest, on the seller note until the SBA loan is repaid in full.  Since most SBA acquisition loans have a 10-year term, that usually means the seller receives nothing on the note for 10 years.  In our acquisition template you can enter the SBA loan and a seller note with payments starting after the term of the SBA loan. 

Should I Use a Seller’s Note in a Business Acquisition?

Of course the seller might want to get paid the full purchase price on the day of the acquisition, but as the buyer it can make a lot of sense to ask for a portion of the purchase price to be a seller’s note.  Why?  It reduces the cash you need at closing, and it keeps the seller invested in your success because some of their payout comes later. Keep in mind that a note on full standby won’t pay the seller anything for years, so it is a weaker motivator than it used to be. A paid consulting agreement, allowed for up to 24 months in an SBA-financed sale, is another way to keep the seller involved during the transition.

Learn More: How to Structure a Seller Note and SBA Loan.

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How to Acquire Multiple Small Businesses

We have been assuming that you are going to acquire a single small business, but there is a growing trend in the small business world where business owners are implementing a roll up strategy when they will acquire an initial business that is often called the platform company and then roll up additional similar companies through add on acquisitions. An example of a roll up acquisition strategy would be acquiring an HVAC contractor in a major metro area that might be a market leader, and then rolling up smaller HVAC contractors in the same market through bolt on acquisitions to increase market share.

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Options for Financing a Small Business Acquisition

Of course an SBA loan and seller note are not the only options for financing an acquisition.  Here are a few more options that you might consider:

• Start a search fund to acquire a business - Learn more about search funds.
• Have the seller keep a stake in the business - How rollover equity works (and where SBA rules limit it)
• Use your retirement account to acquire a business - Guidant Financial
• Acquire a SaaS company - Pipe 
• Acquire an ecommerce business - eCommerce Lending 

As you get into the process of acquiring a business and need a set of financial projections for your lenders or investors, make sure to check out our Acquisition Projection Template which you can also see in action below.

Want a second opinion on your financing plan? Our free SBA review looks at your deal structure before you apply.
Still shopping for a lender? Search recent SBA acquisition loans by lender and state with the free Lender Finder.

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