How to Secure an SBA Term Sheet: Preparing for Your Business Acquisition Loan

Receiving a term sheet from a lender is a major milestone on the journey to buy a business. A term sheet outlines the proposed loan amount, interest rate, repayment schedule, collateral requirements and conditions you must satisfy before closing. For SBA 7(a) loans, the term sheet often follows an initial “pre‑underwriting” phase and signals that the lender is ready to move forward. But lenders don’t issue term sheets lightly. They need to see that your deal is feasible, compliant with SBA rules and supported by thorough documentation. This guide explains what goes into getting an SBA term sheet and how to position your acquisition for approval.

Stage 1: Assemble Your Deal Package

Before a lender will issue a term sheet, you need to provide a complete and organized package of documents. At minimum, you should prepare:

• Signed Letter of Intent (LOI). Most lenders won’t evaluate your deal until you have an LOI with the seller outlining purchase price, terms and exclusivity period.
  
• Business financials. Gather the last three years of business tax returns, year‑to‑date profit and loss statement, balance sheet and a monthly P&L for the prior year. These documents help the lender assess historical performance and seasonality.
  
• Personal financial statements. Each buyer with 20 % or more ownership must complete an SBA Personal Financial Statement (Form 413) and provide their last three years of personal tax returns.
• Credit report. Provide a recent personal credit report showing a credit score of at least 680. Lenders use this to evaluate borrower reliability and SBA eligibility.
• Resume or bio. Lenders evaluate the experience of the person or team running the business. Highlight relevant industry expertise, leadership skills and transferable talents.
  
• Sources and uses model. Provide a detailed breakdown of the total project cost (purchase price, working capital, closing costs, due diligence fees, SBA guaranty fee) and explain how you will fund each line item (loan amount, equity injection, seller financing, investor equity).
  
• Debt service analysis. Calculate the debt service coverage ratio using historical financials and your projected debt payments. Include assumptions about seller notes, interest rates and working capital needs.
  
• Business plan and projections. Outline your plan for operating the business post‑closing, including marketing, staffing, growth initiatives and financial projections for at least three years. Lenders look for realistic, supportable assumptions.
  

A well‑organized data room demonstrates professionalism and makes it easier for lenders to review your file. Label each document clearly and be prepared to provide additional information promptly.

Stage 2: Engage Lenders and Submit Your Package

With your deal package ready, contact multiple SBA lenders or work with a loan broker to solicit proposals. Provide a concise executive summary of your deal along with the full data package. Lenders will conduct a preliminary review to determine if the business meets eligibility requirements (for‑profit, U.S.-based, within size standards) and if your DSCR meets their thresholds (often 1.25 or higher by the second year). If the lender sees potential, they will issue an “indication of interest” or move directly to underwriting.

During this stage, be responsive to lender questions. Provide additional documentation, explain any inconsistencies in the financials and be transparent about potential risks. Lenders appreciate proactive borrowers who anticipate issues and address them head‑on.

Stage 3: Receive and Review the Term Sheet

Once a lender is comfortable with your deal, they will issue a term sheet. This document is not a commitment but rather a non‑binding outline of proposed terms. It typically includes:

• Loan amount and purpose. The amount the lender is willing to finance and what it will cover (purchase price, working capital, equipment).
  
• Interest rate and repayment terms. The rate (fixed or variable) and the amortization period (usually 10 years for acquisitions without real estate).
  
• Equity injection requirements. Confirmation that you will provide the required cash injection (minimum 10 %) and how seller notes or investor equity are treated.
  
• Collateral and guarantors. Description of collateral (business assets, personal assets if needed) and personal guaranty requirements.
  
• Conditions precedent. Items you must satisfy before the loan is approved, such as clean environmental reports, satisfactory appraisal, updated financials, no material adverse change and completion of SBA Form 1919.
  
• Expiration date. The term sheet is usually valid for a limited time, requiring you to proceed to underwriting quickly.
  

Review the term sheet with your advisors. Compare it to proposals from other lenders and negotiate if necessary—perhaps on interest rate spread, fees, or collateral requirements. Keep in mind that lenders are constrained by SBA guidelines and internal policies, so not all terms are negotiable.

Stage 4: Fulfill Conditions and Move to Underwriting

After you accept a term sheet, you’ll move into formal underwriting. Be prepared for more detailed due diligence, which may include site visits, interviews, verification of financial information, and, when required, environmental assessments. Provide updated documentation as requested and stay engaged with your lender. Missing deadlines or failing to provide information can cause your term sheet to expire. If you’re working with a broker, they can coordinate communication and keep the process on track.

Common Roadblocks

• Inadequate documentation. Missing or incomplete financial statements, outdated personal financial statements or poorly organized data can delay the term sheet.
  
• Unrealistic projections. Overly optimistic revenue growth or understated expenses, such as maintenance CapEx, will raise red flags.
  
• Weak DSCR. If your projected DSCR falls below the lender’s threshold, you may need to increase your equity injection, negotiate a lower purchase price or restructure your seller note.
  
• Unresolved due diligence issues. Unreleased liens, pending litigation, unpaid taxes or environmental concerns must be addressed before the lender will proceed.
  
• Credit history. Poor personal credit or bankruptcy history can disqualify you or require additional collateral.
  

Partner with Pioneer Capital Advisory

Securing an SBA term sheet requires preparation, organization and experience. At Pioneer Capital Advisory, we help buyers assemble complete deal packages, calculate DSCR, connect with multiple SBA lenders and negotiate the best terms. Our team guides you through each stage—from LOI to term sheet to final closing—ensuring you satisfy lender and SBA requirements. Because we are paid by the bank, our services come at no cost to you.

Ready to Obtain Your Term Sheet?

The term sheet is your ticket to underwriting. Make sure you’re ready by gathering the right documents, modeling your deal accurately and working with experienced advisors. Contact us to start your financing journey and learn how we can help you secure the SBA loan you need to buy a business.

Closing Section

Getting an SBA term sheet requires more than filling out an application—it demands a well‑structured deal, complete documentation and realistic projections. By understanding each stage of the process and working with advisors who know the SBA landscape, you can secure a term sheet that paves the way to closing. Pioneer Capital Advisory is ready to help you prepare, package and present your deal to lenders. Reach out today to start your journey toward ownership.