SBA 7(a) basics for an acquisition
How the loan that finances most small business acquisitions actually works.
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, 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 standard term is 10 years. If real estate makes up 51% or more of the use of proceeds, the loan can extend up to 25 years, with the actual term blended from the weighted average useful life of everything being financed.
Rate is variable, tied to the Prime rate, with the spread capped by SBA rule rather than left fully to the lender — typically Prime plus roughly 2.25 to 4.75 percentage points, with wider spreads permitted on smaller loans and longer terms. There's no prepayment penalty on loans under 15 years; longer-term loans carry a declining penalty for the first three years only.
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 from an SBA-qualified appraiser is required on essentially every acquisition loan. It's not optional paperwork you can skip if you're confident in the price — it's a hard closing condition, and it's the single most common source of last-minute deal friction (see the timeline section below).
Your attorney drafts and negotiates the purchase agreement in parallel with underwriting, not after it — 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 — worth checking early if the brand isn't already listed, since it can add real time.
Timeline, and where deals actually stall
From a signed LOI to funding, plan on roughly 60-90 days for a straightforward SBA-financed acquisition — 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 — this 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).
The practical takeaway: 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) — it removes two of the slowest variables from a timeline you don't otherwise control.
This guide is for informational and educational purposes only. It does not constitute legal, tax, financial, investment, or lending advice, and is not a substitute for advice from a qualified attorney, accountant, lender, or other licensed professional.