Lending Explained

How to finance a business acquisition -- from SBA loans to seller financing.

Can You Finance a Business Acquisition?

Yes -- most buyers do not pay all cash. Business acquisition financing is a well-established category. Lenders evaluate the business being acquired (its cash flow, assets, and history) as much as they evaluate you as a borrower. A business that generates consistent cash flow can often secure financing with 10-20% down.

Loan Types at a Glance

SBA 7(a) Loan

SBA 504 Loan

Real Estate & Equipment

Designed for acquiring fixed assets -- commercial real estate, heavy equipment, or major renovations. Not for working capital.

·Up to $5.5 million in SBA-guaranteed funds
·50% conventional bank loan + 40% SBA + 10% borrower down payment
·Fixed interest rate on the SBA portion
·Best for asset-heavy acquisitions

Learn more at SBA.gov

Seller Financing

Buyer-Friendly

The seller agrees to accept payments over time -- essentially becoming your lender. Common in smaller deals and when banks are not involved.

·Typically 10-30% of purchase price
·Terms of 3-7 years at 5-8% interest
·Signals seller confidence in the business
·Often combined with an SBA or conventional loan
·Promissory note required -- get an attorney

Conventional Acquisition Loan

Bank-Issued

Standard bank or credit union loans not backed by the SBA. Often faster to close but with stricter terms and lower LTV ratios.

·Amounts vary -- typically up to $2M without SBA guarantee
·Shorter terms (5-7 years)
·Requires strong collateral and credit
·Faster approval than SBA (4-8 weeks vs. 8-16 weeks)

Revenue-Based Financing

No Equity Loss

A lender provides capital in exchange for a percentage of future monthly revenue until a set repayment cap is reached. No fixed monthly payment.

·Ideal for businesses with strong recurring revenue
·No personal guarantee or collateral required
·Factor rates: 1.1x-1.5x (effectively 10-50% cost of capital)
·Repayment adjusts with revenue -- lower months = lower payment
·Not ideal for long-term acquisition financing

What Lenders Look For

DSCR (Debt Service Coverage Ratio)

Cash flow divided by total debt payments. Lenders want 1.25x or higher.

Credit Score

680+ for SBA loans. 720+ for best rates on conventional loans.

Down Payment

Typically 10-25% of purchase price. More = better terms.

Business Cash Flow

2-3 years of P&Ls showing consistent profitability.

Collateral

Business assets, equipment, real estate, or personal guarantee.

Industry & Risk Profile

Lenders prefer established industries with predictable cash flow.

Typical Acquisition Financing Stack

Most deals are financed with a combination of sources. A common structure:

Source	Typical %	Notes
SBA 7(a) Loan	70-80%	Bank-issued, SBA-guaranteed
Seller Financing	10-20%	Held by seller as note
Buyer Down Payment	10%	Cash at closing

Official SBA Resources

The U.S. Small Business Administration offers loan programs, lender matching, and free educational resources for business buyers and sellers.

Visit SBA.gov -- Loans & Funding

Find a Business Worth Financing

Browse verified listings on Clozur -- each with financial details available under NDA so you can evaluate cash flow before approaching lenders.

Browse Marketplace