SBA 7(a) basics for an acquisition

How the loan is structured

SBA 7(a) is the general-purpose SBA loan program, and it's the one behind most financed acquisitions of an existing small business. The lender finances up to 90% of total project cost (purchase price plus closing costs and any working capital rolled into the loan), and the buyer brings the rest as an equity injection of at least 10% (see the equity injection guide for what counts toward that).

Term length depends on what you're buying. Because an acquisition is usually financing mostly goodwill (customer relationships, brand, trained staff, systems) rather than hard assets, the loan can amortize over no more than 10 years. If real estate is part of the deal, the lender either puts it in a separate real estate loan of up to 25 years or blends the two terms on a weighted-average basis.

Rate is usually variable, tied to the Prime rate, with the spread capped by SBA rule rather than left fully to the lender. The cap depends on loan size: Prime plus 3 percentage points above $350,000, which covers most acquisitions, then Prime plus 4.5 points up to $350,000, 6 points up to $250,000 and 6.5 points at $50,000 or less. Loans under 15 years carry no prepayment fee. On a loan of 15 years or longer, prepaying more than 25% in one of the first three years costs 5%, 3% and then 1% of the amount prepaid.

Who's involved, and in what order

Your SBA lender does the real underwriting work. Most acquisition loans go through a bank or non-bank lender with Preferred Lender Program (PLP) delegated authority, meaning they can approve the SBA piece themselves instead of sending your file to the SBA for a separate review. That alone can save weeks off the timeline.

A business valuation is required on every acquisition loan. Above a $350,000 business purchase price (which excludes any real estate in the deal), it has to come from a qualified independent appraiser. At or below that, the lender may value the business itself, unless the buyer and seller are closely related. The valuation has to support the price: if you pay more than it supports, the difference must be made up with equity, not a bigger loan. It's a hard closing condition, and it's the single most common source of last-minute deal friction (see the timeline section below).

At a business purchase price of $3 million or more, a first-time acquisition also needs a Quality of Earnings (QoE) report. It has to be prepared for the lender, not by or for the seller, and the lender sizes the loan from the earnings it confirms.

Your attorney drafts and negotiates the purchase agreement in parallel with underwriting, not after it, since the lender needs the agreement's actual terms (price, asset allocation, any seller note) to finalize the loan file. The seller and their attorney sign off on that same agreement, and if a seller note is part of the structure, execute a standby agreement subordinating it to the SBA loan. If real estate is part of the deal, add an environmental assessment to the list.

Eligibility basics

The business has to qualify as "small" under SBA's size standards for its industry, usually a revenue or employee-count threshold that varies by NAICS code. Most owner-operated small businesses clear this without issue. It's worth double-checking for a larger target.

The business must be for-profit and operating in the US, and the buyer, not just the business, goes through a character and background review covering things like past felonies, delinquent federal debt, or being barred from federal programs.

Some business types are categorically ineligible: passive real estate holding, lending or investment businesses, gambling, and businesses that derive significant revenue from an ineligible activity even as one segment of a broader operation. Franchises need to already be on the SBA Franchise Directory, or go through a franchise agreement review. Check this early if the brand isn't already listed, since it can add real time.

Ownership has rules too. Every owner and SBA-required guarantor must be a US citizen or US national whose principal residence is in the US. Since March 1, 2026, lawful permanent residents (green card holders) no longer qualify. And the seller can't stay on as an owner, officer or employee after the sale, only as a consultant for up to 24 months, and earn-outs paid to the seller are prohibited.

Timeline, and where deals actually stall

From a signed LOI to funding, plan on roughly 60-90 days for a straightforward SBA-financed acquisition. It runs faster with a PLP lender and clean seller financials, slower with real estate, multiple financing sources, or books that need work to reconcile. The rough sequence: loan application and underwriting, appraisal ordered, SBA approval, closing conditions cleared (life insurance assignment, UCC filings, hazard insurance, any environmental sign-off), then funding and close.

Two things stall more deals than anything else. First, an appraisal that comes in below the negotiated price. That forces a renegotiation, a bigger equity check, or both, and it happens more often than buyers expect. Second, seller financials that don't reconcile cleanly to tax returns, which stalls underwriting while it gets sorted out (see the seller financials guide for what to check yourself before you're relying on the lender to find it).

Get pre-qualified and get your equity injection funds seasoned and documented before you're under LOI, not after (see the lender pre-qualification guide). Doing both early removes two of the slowest variables from a timeline you don't otherwise control.