What Happens After You Sign an LOI to Buy a Business (With an SBA Loan)

Congrats - you have signed a Letter of Intent (LOI) to buy a business with an SBA Loan. At this point, you may be on a quest to find the answer to the question “What happens next after signing an LOI?”. 

Since you have planned to acquire an SBA 7(a) loan, you are now at a stage where you need to understand the SBA Loan process after LOI to avoid any shortcomings and delays in your way. This phase serves as the blueprint for the entire process and sets the direction for the deal until it closes. In this article, we’ll provide you with a detailed step-by-step guide, share timelines, mention some common issues, and offer valuable tips to help you close the deal with confidence.

What Is an LOI in a Business Acquisition?

A Letter of Intent (LOI) is a non-binding formal document that outlines the general plans or initial terms of a proposed business purchase. It sets the groundwork and roadmap between a buyer and seller before they formally enter into negotiations.

Some of the key aspects of an LOI:

• It is not legally binding, but it shows a strong intent.
• It includes terms related to purchase price, closing timeline, and structure of the deal.
• It initiates the due diligence process and marks the beginning of the SBA loan timeline after LOI.

In most SBA-financed acquisitions, the post-LOI phase begins with the buyer and lender initiating thorough due diligence.

Next Steps After Signing the LOI

As previously promised, here is a step-by-step guide to help you navigate the closing process. These are the key actions to consider after signing an LOI under SBA terms: 

1. Begin with due diligence

Start with the due diligence process, and examine the business health:

• Review Financials: Carefully analyze the company’s financial statements and tax returns for the past three years to evaluate its profitability, trends, and financial stability.
• Assess Legal and Contractual Obligations: Collect and examine all contracts, lease agreements, legal liabilities, and compliance-related documentation to identify any risks or obligations.
• Evaluate Operational Integrity: Understand your customer base and demographic trends, review operational systems for efficiency and scalability, and verify the reliability and continuity of key suppliers.

2. SBA Prequalification or Lender Match

If you haven't decided on a lender to work with, this is the time to:

• Select a lender and work with an SBA loan advisor or a broker
• Provide a summary of your borrower information and all initial required documents
• After signing the LOI, double-check that your financials—as well as those of the business—are in line with SBA loan qualification criteria.

3. Choose the Right SBA Lender

This is one of the critical decisions of the entire process since it sets the direction of your deal with respect to its pace and success.

• Ensure the SBA lender you're working with is not only aware that you have a business under LOI, but also fully understands the structure and nuances of the search fund model.
• Research and look for a lender experienced in SBA 7(a) acquisition loans to save your time  
• Obtain the term sheets and start the initial underwriting process

Note: If you're working with an SBA loan consultant firm like Pioneer Capital Advisory LLC, we handle all of these steps for you at no additional cost. This work is included in our service offering, and we are compensated solely by the SBA lender—only upon the successful closing of your loan.

4. Draft the Purchase Agreement

Before obtaining final approval, it is critical to involve your M&A attorney closely in the drafting of the purchase agreement. This is not a step to navigate lightly—errors or omissions in the purchase agreement can have substantial financial and legal consequences. As a business buyer, you are entering into a high-stakes transaction, and the guidance of a qualified M&A attorney ensures your interests are fully protected and aligned with SBA lender expectations.

Before the final approval, here are some crucial aspects to consider:

• Engage your M&A attorney to draft the agreement – The purchase agreement should not be a generic template. It must reflect the unique structure of your transaction and the specific SBA requirements. A seasoned attorney can preemptively address common deal issues and tailor the document to avoid costly disputes.
• Collaborate with your lender and legal counsel to finalize deal terms – The structure of your transaction—including how the deal is financed, contingencies, closing conditions, and indemnifications—must be carefully reviewed with both your lender and attorney to ensure clarity and compliance.
• ‍Incorporate provisions for escrow, working capital, and transition planning – Your attorney will help define these terms in a way that protects your downside risk while aligning the expectations of the buyer and seller.

These steps are helpful to build an early momentum and are core for the next steps after the business LOI SBA framework.

The SBA Loan Process After an LOI: A Step-by-Step Guide for Business Buyers

If you’re planning to buy a business using SBA 7(a) financing, it’s essential to understand what happens after you sign a Letter of Intent (LOI). Whether you’re a first-time buyer acquiring your first small business or a seasoned entrepreneur expanding your portfolio, this guide walks you through the complete SBA loan process after LOI—step by step.

Step 1: SBA Loan Prequalification (3–7 Days)

The SBA prequalification phase begins immediately after your LOI is signed. During this step, the lender performs a preliminary assessment of:

• The financial performance and viability of the business for sale
• Your personal financial profile, credit history, and acquisition experience
• The proposed structure of the business acquisition, including seller notes and equity injection

Prequalification helps ensure that the proposed deal meets SBA 7(a) loan requirements and provides an opportunity to identify potential issues before moving forward.

Step 2: SBA 7(a) Loan Application (7–14 Days)

After prequalification, you’ll submit your formal SBA loan application. This phase requires a full financial package, which typically includes:

• Three years of business and personal tax returns
• Year-to-date profit and loss statement, balance sheet, and debt schedule
• Personal Financial Statement (PFS) for each buyer or guarantor
• A draft or signed Purchase Agreement (Asset Purchase or Stock Purchase)
• A third-party business valuation, if applicable*

The lender uses this information to assess the business acquisition and ensure that the transaction meets SBA lending guidelines.

Business Valuation Requirements (Per SBA SOP 50 10 8, Effective June 1, 2025)

According to the SBA’s updated guidelines, a third-party business valuation is required when:

• The loan proceeds will be used to purchase an existing business, and
• The total amount being financed (including any debt being assumed) exceeds $250,000, or
  
• The buyer and seller share a close relationship, such as being family members or business partners

The valuation must be performed by an independent, qualified third-party professional and must reflect the fair market value of the business. Your SBA lender can help coordinate this step with a compliant valuation provider.

Step 3: SBA Loan Underwriting (15–30 Days)

During underwriting, the lender performs a comprehensive risk assessment of the deal. This includes:

• Verifying that the business generates sufficient cash flow to support loan repayment
  Evaluating your business experience, resume, and proposed acquisition plan
• Analyzing industry risk, customer concentration, and transaction structure
• Confirming your equity injection and any outside financing components

Underwriting also includes compliance checks to ensure the transaction qualifies for SBA support. If the purchase involves a franchise or includes commercial real estate, additional documentation will be required.

Step 4: SBA Loan Closing (30 Days)

Once underwriting is complete and the loan is approved:

• The lender issues a formal Loan Commitment Letter detailing loan terms and conditions
  The SBA provides an Authorization to fund the loan
• Final closing conditions are established to move the deal forward to closing

This stage formalizes SBA approval and allows the legal and funding process to begin in earnest.

The final step is loan closing and funding, during which the business officially transfers to the buyer. This includes:

• Signing all SBA loan documents and legal disclosures
• Disbursing loan funds through escrow or directly to the seller
• Executing final agreements, lease assignments, and ownership transfer

If the transaction includes additional financing sources—such as working capital, seller carrybacks, or earnouts—these components are reviewed and integrated at this stage.

How Long Does the SBA Loan Process Take After LOI?‍

The SBA loan process from LOI to closing typically takes between 45 and 90 days. Several factors affect the timeline, including:

• The complexity of the business being acquired
• Whether the transaction includes real estate, multiple sellers, or franchises
• The responsiveness of the buyer, seller, attorneys, and third parties
• The lender’s experience with SBA 7(a) loans and acquisition financing

Working with a commercial loan brokerage that specializes in SBA business acquisitions can significantly reduce delays and ensure a smoother experience.

SBA 7(a) Loan Documentation Checklist for Business Acquisitions

To stay ahead of potential roadblocks, gather the following documents as early as possible:

Financial Documents:

• Three years of business tax returns
• Year-to-date profit and loss statement and balance sheet
• Business debt schedule and seller financials (if applicable)
  

Buyer Documentation:

• Personal financial statement
• Resume or biography outlining your experience in business operations or relevant industries
• Written acquisition plan or transition plan
• Source of equity injection (e.g., personal savings, retirement funds, gifts)

Business Valuation:

• Required if the total financing exceeds $250,000 or if the buyer and seller have a pre-existing relationship
• Must be prepared by a qualified, independent valuation firm
• Often coordinated by your SBA lender to ensure compliance with SBA rules
  

Purchase Agreement:

While a draft Purchase Agreement is acceptable for early underwriting, a fully executed version is required before closing. It must include:

• Purchase price and terms of payment
• Allocation of purchase price across assets, goodwill, and inventory
• Seller non-compete clause and transition assistance terms
• Contingency language related to SBA loan approval and due diligence
  

It is critical that the Purchase Agreement be drafted by an experienced M&A attorney who is familiar with SBA loan-funded acquisitions. Many SBA deals fall apart due to poorly drafted contracts that omit necessary legal provisions or contain terms that violate SBA guidelines.

Common Delays (And How to Avoid Them)

Sometimes, even qualified buyers face issues that ultimately delay the closing. Here’s what to look for:

• Incomplete financial documents - Keep all the financial documents ready and complete.
• Last-minute changes - Changes in price and deal structure delay the process further
• Inexperienced Lenders - Opt for the experienced lender to save your time and avoid any hurdles coming your way
• Poor communication - Clarify all the terms and keep clear communication with everyone involved in the process

Tip: Choose a lender with a good track record of processing deals under LOI SBA loan criteria.

FAQs

How long does it take to close an SBA loan after LOI?

‍Typically, it takes 45-90 days, depending on the lender and documents readiness.

Can I switch lenders after LOI?

‍Yes, but it will cause delays. We recommend choosing an experienced lender at the early stage to avoid delays later on and close your deal within your specified period. 

Do I need a full purchase agreement before starting the SBA loan?

‍‍No, but at least you need to keep its draft; however, a final version must be submitted before the funding is approved.

I have an LOI—do I need an SBA loan broker?

Not necessary, but having one is highly recommended because a broker can save your time, help you avoid any pitfalls, and match you with the best lender. 

Final Thoughts: Keep Momentum After Your LOI is Signed

Signing an LOI is a big step - but surely not the final one! So, keep the momentum and ensure a smooth and timely close. 

Here are some of the tips: 

• Stay organized
• Work with professionals having proven experience in the SBA loan after LOI
• Keep clear communication 
• Be ready for lender questions

Need Help Navigating Your SBA Loan?

Buying a business with an SBA loan doesn’t have to be complicated.

At Pioneer Capital Advisory LLC, our seasoned team has successfully closed over 90 SBA 7(a) business acquisition deals. From Letter of Intent (LOI) through closing, we’re your dedicated partner every step of the way. We know the SBA playbook inside and out—and we’ll make sure your transaction runs smoothly, efficiently, and with confidence. 

Contact us at deals@pioneercap.com or submit a form here!