How to Finance a Business Acquisition: SBA Loans and Other Options

How to Finance a Business Acquisition: SBA Loans and Other Options

Buying a business is one of the smartest ways to build wealth—and do it faster. You’re stepping into something with momentum: cash flow, an existing customer base, and systems that already work. That gives you a serious head start compared to starting from scratch.

Of course, buying a business outright with all cash isn't always realistic. If you don’t have the full amount ready to go, you’ll need to explore financing options.

Here’s the good news: there are plenty of ways to finance a business purchase—and we’re going to walk you through them. One of the most popular routes is the SBA 7(a) loan, which we’ll cover in detail. But we’ll also explore other strong alternatives to help you find the right fit for your situation.

So whether you’re just starting to look into buying a business or you’ve done this before, this guide will help you get a clear understanding of the financing landscape—and how to navigate it with confidence.

Your Main Options to Finance a Business Purchase

If you're exploring the exciting journey of buying a business, one of the most important decisions you'll make is how to finance the acquisition. Fortunately, there are several financing options available—each with its own benefits, challenges, and ideal use cases. The right approach will depend on your personal financial profile, the structure of the deal, and the characteristics of the business you're aiming to acquire.

Let’s walk through the five most common and practical ways to finance a business purchase:

1. SBA 7(a) Loan: A Popular Path for Business Buyers

The SBA 7(a) loan is often the first stop for many entrepreneurs—and for good reason. This government-backed loan program is administered through approved lenders and offers one of the most attractive financing options in the small business marketplace.

With an SBA 7(a) loan, you can finance up to 90% of the total acquisition cost, leaving you responsible for only a 10% down payment. The repayment terms can extend up to 10 years (and sometimes longer for real estate-inclusive transactions), and the interest rates are typically very competitive when compared to conventional lending.

The SBA 7(a) structure is especially advantageous for buyers looking to preserve their liquidity or who want to keep as much working capital as possible post-closing. However, it’s important to understand that the application process is rigorous. You'll need to provide thorough documentation, including personal financial statements, business financials, tax returns, and more. The underwriting process is comprehensive, and approval timelines can be longer than other types of loans.

Still, for those who meet the eligibility criteria and are comfortable navigating a documentation-heavy process, the SBA 7(a) loan provides a powerful financing solution to acquire a business with limited upfront capital.

2. Seller Financing: Bridging the Gap with the Seller’s Help

Seller financing is a flexible and often underappreciated option that can significantly enhance the overall deal structure. In a seller-financed transaction, the seller agrees to finance a portion of the purchase price, typically through a promissory note that is paid back over a set period of time, often with interest.

This approach can be especially useful in building trust between buyer and seller, as the seller retains a vested interest in the ongoing success of the business. It also can make the negotiation and closing process smoother, particularly in deals where bank financing may fall short of the total purchase price.

Most sellers are willing to finance 10% to 40% of the deal—though some may agree to more or less depending on their level of confidence in the buyer and the structure of the deal. Because seller financing usually isn’t sufficient on its own to complete the purchase, it’s often used in conjunction with SBA loans, buyer equity, or other funding sources.

If you’re seeking a creative way to close the gap in a funding stack—or if you’re purchasing a business with less-than-ideal documentation—seller financing can be a valuable tool.

3. Conventional Business Loans: Traditional Financing with Stricter Standards

Conventional business loans—those provided by banks or credit unions without any SBA backing—offer another viable route for funding a business purchase. These loans tend to offer attractive interest rates, faster closing timelines, and a streamlined structure if you’re dealing with a lender who’s familiar with business acquisitions.

That said, conventional loans come with stricter qualification requirements. Borrowers generally need excellent personal and business credit, a strong history of income, and substantial collateral to back the loan. Down payment requirements also tend to be significantly higher—often in the 20% to 30% range—and the repayment periods are usually shorter, which can result in higher monthly payments.

Because of these hurdles, conventional business loans tend to be better suited for buyers with deep financial resources and a proven track record of managing or owning businesses. If you’re confident in your financial strength and want to avoid the SBA’s paperwork requirements, this may be a route worth considering.

4. ROBS (Rollover as Business Startups): Debt-Free Financing Through Retirement Funds

If the idea of taking on debt doesn’t sit well with you, ROBS—short for Rollover as Business Startups—might be a smart alternative. This lesser-known strategy allows you to tap into your retirement funds, such as a 401(k) or traditional IRA, to finance your business purchase without triggering early withdrawal penalties or immediate tax liabilities.

Here’s how it works: You establish a new C Corporation, roll your retirement funds into a newly created 401(k) plan within that corporation, and then use those funds to purchase stock in the company—thereby providing the capital to fund your acquisition.

The major advantage? You get access to capital without borrowing or paying interest. The drawback is that the structure must follow very specific rules and IRS guidelines, and it requires close management to stay compliant. That’s why it’s essential to work with an experienced ROBS provider or advisor who can guide you through the setup and ensure everything is done properly.

For buyers who are sitting on sizable retirement savings and want to invest in themselves without the burden of debt, ROBS can be an excellent solution.

5. Equity Investors or Partners: Tapping into Shared Ownership for Larger Deals

Equity financing—raising capital by bringing on investors or partners in exchange for ownership in the business—can be an effective option for buyers pursuing larger or more growth-oriented acquisitions.

In this model, investors contribute capital to help fund the purchase, and in return, they receive a share of ownership in the business. This means you’ll be giving up some level of control and future profits, but it also means you’ll be sharing the risk and tapping into financial resources you might not otherwise have.

Equity financing is particularly common in larger transactions where SBA or conventional loans might not be sufficient or where a strategic investor can bring more than just capital to the table—such as operational expertise, industry relationships, or access to future growth opportunities.

While this route isn’t right for every buyer—especially those who value full control—partnering with the right investor can unlock access to bigger deals and provide valuable support during the growth phase of the business.

Why the SBA 7(a) Loan Is the Premier Choice for Business Acquisitions

One of the most compelling features of the SBA 7(a) loan is its ability to finance up to 90% of the business purchase price. This high-leverage structure significantly reduces the amount of capital you need to contribute upfront, making it easier to move forward with a purchase.

Another key advantage is the SBA loan’s flexibility. Lenders are often able to extend credit even if you don’t have decades of industry experience—especially when the target business has strong cash flow. Because the loan is backed by the federal government, participating lenders have greater confidence in supporting qualified buyers.

If the business you’re acquiring generates steady revenue and you bring relevant operational or leadership experience to the table, you may be a strong candidate for this financing solution. For acquisition loans up to $5 million, the SBA 7(a) loan remains a powerful tool that helps make business ownership more attainable.

Down Payment & Deal Structure: What Business Buyers Should Know

Understanding the equity and structural requirements behind acquisition financing is one of the most important steps for any buyer pursuing a business purchase. Most SBA lenders require the buyer to contribute around 10% of the total project costs or loan budget  in the form of equity. However, with the right deal structure, it’s possible to reduce how much capital you need to inject upfront—without compromising the integrity of the transaction.

A common way to accomplish this is through seller financing. If the seller is willing to carry a note—essentially lending a portion of the purchase price back to the buyer—it can help reduce the amount of cash the buyer needs at closing. Under current SBA guidelines, for this seller note to count toward the required 10% equity injection, it must satisfy two strict conditions:

1. The note must cover no more than 5% of the total purchase price, and
   
2. It must be placed on full standby for the entire term of the SBA loan, meaning no payments of principal or interest for up to 10 years.
   

It’s common to see deals where the buyer brings 5% in cash equity and the seller carries a 5% note on full standby—together meeting the 10% requirement. However, any seller note that doesn’t meet both SBA criteria must be treated as standalone financing and cannot be counted toward the equity injection.

Equally important is the concept of the Debt Service Coverage Ratio (DSCR), which measures a business’s ability to meet its debt obligations from net operating income. At Pioneer Capital Advisory, we maintain a strict requirement of a minimum 1.25x DSCR on all deals we underwrite. This means the business must generate at least $1.25 in earnings for every $1.00 in loan payments due. While some SBA lenders may accept lower ratios, our standard reflects our core philosophy: we aim not just to get deals done, but to set our clients up for long-term financial success. A strong DSCR helps ensure our clients are acquiring businesses with the cash flow strength to thrive after the transaction closes—not merely survive.

Grasping these core principles—how to structure your equity injection and understanding what constitutes a healthy debt profile—can make a meaningful difference when preparing a successful SBA loan application.

What Lenders Look For

When reviewing your loan application, lenders typically evaluate four core areas:

1. Business Financials

Lenders prefer businesses with at least three years of profitable operations and clean tax records. Steady revenues and sound financials lower their risk and improve your chances of securing funding.

2. Cash Flow

A business must demonstrate the ability to generate sufficient cash flow to cover operating expenses and comfortably service the debt. Strong cash flow is one of the most important indicators lenders use to assess repayment ability.

3. Experience and Credit History

Your background matters. Lenders look favorably on borrowers with industry experience and a solid credit history—typically with a personal credit score above 680—as this signals reliability and lower risk.

4. Industry Risk

Lenders generally favor businesses in stable, established industries such as automotive services, healthcare, or repair. Niche or seasonal industries may be perceived as higher risk and scrutinized more carefully.

These criteria directly influence your eligibility, the terms of your financing, and how smoothly the approval process goes.

FAQs

1. What’s the best loan for buying a business over $1MM?

‍The SBA 7(a) loan is a top option for acquisitions up to $5 million due to its favorable terms and flexibility. For deals with bank financing needs exceeding $5 million, buyers may use a blended structure—pairing an SBA loan with a conventional loan in a pari passu arrangement, where both lenders share equal repayment rights.

2. Can I combine SBA with seller financing?

Yes, and it’s often encouraged. Seller financing complements SBA loans by strengthening the deal structure and can, when structured correctly, count toward your equity injection—helping to meet lender requirements.

Conclusion

Taking the leap to buy a business is one of the most exciting—and potentially life-changing—decisions you can make as an entrepreneur. But while identifying the right business opportunity is critical, how you finance that purchase can be just as important. In fact, the method you choose to fund your acquisition can either streamline your path to ownership or introduce unnecessary complexity and risk.

That’s why it’s so valuable to take the time upfront to understand your financing options. Whether you're considering an SBA 7(a) loan, relying on seller financing, exploring a ROBS (Rollover as Business Startups) strategy, or crafting a combination of funding sources, each path comes with its own set of rules, benefits, and trade-offs. Knowing how these options compare—and which best aligns with your goals, financial situation, and timeline—can give you a major advantage when it comes time to structure your deal.

And here’s the good news: you don’t have to figure it all out on your own.

At Pioneer Capital Advisory, we specialize in helping business buyers like you navigate the complexities of acquisition financing. Our team of seasoned professionals will work closely with you to understand your objectives, determine the most suitable financing strategy, and match you with the right lenders to bring your deal across the finish line. We’re here to accelerate your timeline, avoid costly mistakes, and give you the confidence that comes from having the right guidance at every step.

So whether you’re just starting to explore your options or you’ve already found the business you want to buy, we invite you to reach out and start a conversation with our team. It all begins with a simple step.

👉 Book a free consultation and let’s discuss how we can help you create a financing strategy tailored to your acquisition goals—with clarity, speed, and peace of mind.