SBA Financing Guide
Buy the firm you work for with as little as 5% down
With SBA 7(a) financing, key employees can buy the engineering or surveying firm they work for with as little as 5 percent down. The standard equity injection is 10 percent.
This is the financing behind the Step-Up Legacy Plan™, and it is what makes buying out your boss and buying the business you work for a bankable deal rather than a wish. This guide explains how SBA financing works, what lenders evaluate, and how to prepare for a successful purchase. Reviewed for SBA accuracy as of July 2026.
Sellers prefer SBA-financed deals because they get paid at closing rather than waiting on deferred installments.
Key Benefits for Buyers
Why the SBA 7(a) program fits employee buyouts
The 7(a) program is designed to help individuals buy businesses and help companies expand by acquiring them.
Low down payments
Ten percent is standard, or as little as 5 percent when the seller participates in the financing.
Extended terms
A 10-year repayment term on acquisition loans keeps monthly payments manageable for the new owners.
Competitive rates
Rates are negotiated with the lender and subject to SBA maximums. Acquisition loans commonly land at the ceiling of Prime plus 2.75 percent.
Complete financing
The loan can cover purchase price, goodwill, working capital, and closing costs in one package.
Independent Valuation Protection
An outside appraisal protects the buyer too
An SBA-financed acquisition requires a business valuation supporting the purchase price, and depending on the transaction SBA rules may require that valuation to come from an independent third party, much like a bank hires an appraiser before granting a mortgage on a home. That firm has passed the bank's vetting to join its approved vendor list.
The lender wants to be sure the asset supports the loan amount, which protects you from overpaying and keeps the transaction grounded in fair market value. Banks base that value on historical cash flow, EBITDA or SDE, not on projections.
Loan Structure
How an SBA acquisition loan is built
The business is the borrower
Business income repays the loan. You provide a personal guarantee and must operate the firm profitably.
Banks analyze historical performance
Three years of tax returns are required. Banks focus on proven cash flow, not projections.
Documentation proves viability
Any significant change in the financials needs explanation and supporting documentation to win approval.
The Five Cs of Lending
What banks weigh on every commercial loan
Banks do not just look at the numbers. Their decision hinges on five factors that assess the risk and viability of the loan.
01
Character
Your reputation and track record of meeting financial obligations, running the business ethically, and managing credit responsibly.
02
Capacity
Your ability to repay. Banks analyze cash flow, income statements, and debt service coverage to confirm the firm can cover payments.
03
Capital
The money you invest in the deal. A strong capital base signals commitment. The SBA minimum is 5 percent.
04
Collateral
Assets that secure the loan. Under SBA policy, a shortfall in collateral is not, by itself, a reason to deny a loan.
05
Conditions
The loan purpose, the state of the economy, and industry-specific factors that could affect the firm's ability to repay.
Understanding Interest Rates
Predictable, fully amortizing, no balloon payment
SBA 7(a) rates are variable and negotiated with the lender, subject to SBA maximums rather than set by a published price sheet. Pricing varies by loan size, lender, collateral, buyer strength, and transaction risk. Because business acquisitions typically carry a collateral shortfall, most of these loans land at the SBA ceiling of Prime plus 2.75 percent floating, adjusting quarterly with the Prime rate.
For illustration only, at a Prime rate of 7.5 percent a loan priced at Prime plus 2.75 percent carries a rate of 10.25 percent. Prime moves and lender pricing is negotiated, so confirm the current quote with your bank before you run the numbers on a deal.
Some banks advertise lower rates, but they typically require 20 percent or more down, do not provide working capital, and place a mortgage on your residence. SBA loans trade a slightly higher rate for predictable, fully amortizing payments with no balloon at the end.
SBA Financing FAQ
Common questions about SBA 7(a) acquisition loans
- What is SBA 7(a) financing?
SBA 7(a) financing is a loan guaranteed by the U.S. Small Business Administration that helps individuals purchase small businesses with flexible terms and low down payments.
- Can I really buy a business with just 5 percent down?
Yes. Your employees only need 5 percent down. That is only $50,000 for every million dollars in value.
- What kind of businesses qualify for SBA financing?
The business must be U.S.-based, for-profit, and generate enough cash flow to cover debt payments.
- What credit score do I need?
Lenders generally prefer a personal credit score of 680 or higher, with no recent bankruptcies or government loan defaults.
- Can I use home equity as my down payment?
Yes. A home equity loan or line of credit is a common way to fund the required down payment.
- How long does the SBA loan process take?
The process can take 45 to 90 days, depending on how quickly you provide documentation and how experienced your advisor is.
- Do I need to guarantee the loan personally?
Almost certainly. Individuals owning 20 percent or more of the business are generally required to provide a personal guarantee, and every loan needs at least one guarantor. Lenders can require more under their own credit policy.
- What collateral is required?
The business itself is the collateral. SBA rules state that a collateral shortfall is not a reason to decline a loan.
Ready to Explore Your Options
SBA financing may be the most underused tool in your deal
With as little as 5 percent down, qualified buyers become owners and sellers exit securely. Let us show you what your deal could look like.