A signed letter of intent can feel like the finish line, but it is only the beginning. Even a signed purchase and sale agreement does not mean the business has truly been sold. Until the acquisition loan is underwritten, approved, and funded, the seller has an agreement, not the proceeds.
At Allen Business Advisors, a completed sale means three things have occurred:
- The purchase and sale agreement has been signed.
- The bank has advanced the acquisition funds.
- All or nearly all of the sale proceeds have been deposited in the seller's bank account.
Sellers sometimes include a small seller note as part of the financing structure. However, if a substantial portion of the purchase price remains deferred, escrowed, or payable over several years, the seller still bears meaningful transaction risk. Legally, that may constitute a closing. At Allen Business Advisors, it does not constitute a completed sale.
The real finish line is not finding a buyer, signing an agreement, or scheduling a closing. It is converting all or nearly all of the business's value into cash in the seller's bank account at closing.
That is where SBA acquisition expertise stops being a nice-to-have and becomes the difference between an agreement on paper and a seller being paid.
A capable engineer can still struggle with a government contract
Consider a respected civil engineer managing a private development project. During a meeting, the client requests a design change. The engineer confirms the request, completes the additional work, and submits an invoice. If a disagreement arises, the parties generally resolve it commercially.
The same response can create serious problems on a federal contract. The project manager must determine whether the person requesting the change has authority to bind the government, whether the change requires a formal contract modification, how the additional labor must be recorded, and whether the resulting costs are allowable and reimbursable.
The engineering may be impeccable. The invoice can still be rejected.
Federal contracting is governed by a specialized set of laws, regulations, and contract provisions. For example, the Federal Acquisition Regulation provides that contracting officers may bind the government only within the authority delegated to them. An agreement entered into by someone without that authority may be treated as an unauthorized commitment and is not automatically binding.
Not every federal requirement applies to every contract, and state and municipal procurement rules vary. The central point is simpler: strong private-sector experience does not automatically translate into expertise in a specialized government system.
SBA-financed acquisitions present the same kind of specialized risk
An experienced business advisor may understand valuation, negotiation, due diligence, and business sales without knowing how to structure an SBA-financed acquisition. In addition to SBA requirements, each bank has its own credit standards and underwriting practices.
In both settings, the fundamentals may look familiar while the rules governing success are different.
An interested buyer is not necessarily a financeable buyer
A sincere buyer can make an acceptable offer yet still be unable to finance the acquisition. SBA 7(a) eligibility is only the starting point. It does not guarantee that a lender will approve a particular buyer, purchase price, or transaction structure.
What an SBA acquisition lender evaluates
Historical cash flow. The company must generate sufficient sustainable cash flow to service the proposed acquisition debt while continuing operations. A seller may focus on the company's most recent successful year, whereas the lender will typically examine several years of results, interim performance, margins, trends, client concentration, and the reliability of projected earnings.
Adjustments to earnings. Owner compensation, personal expenses, nonrecurring costs, and other adjustments may legitimately affect normalized cash flow. However, the lender and appraiser will not necessarily accept every adjustment proposed by a seller or broker. Each material adjustment should be reasonable, documented, and likely to benefit the buyer after closing.
Purchase price and valuation. The buyer and seller may agree on a price, but the lender is not required to finance the purchase. If an independent valuation does not support the purchase price, the buyer may need to contribute additional equity, the seller may need to reduce the price or finance a portion of it, or the transaction may fail. For how firms in this size range are actually valued, see our guide to what your engineering firm is worth.
Buyer qualifications. The lender evaluates the proposed buyers' experience, financial capacity, creditworthiness, equity, and management ability. This is especially important when employees are acquiring the firm. Being an excellent engineer, architect, or surveyor does not automatically indicate readiness to assume responsibility for finance, personnel, business development, and ownership.
Equity and seller financing. The buyer's equity injection sources must be documented and acceptable. If the seller finances part of the purchase price, the note may need to be subordinated and structured to comply with applicable SBA and lender requirements. A seller note is not merely a convenient line in the purchase agreement. Its payment terms determine whether the seller is paid at closing or remains at risk for years.
Working capital. A transaction that finances the purchase price but leaves the company without adequate operating liquidity is misstructured. Professional-service firms must continue covering payroll and overhead while awaiting client payments. Accounts receivable and backlog can be substantial, particularly for government and institutional assignments with extended billing and approval cycles.
Ownership and guarantees. The buyers' identities, ownership percentages, management roles, and personal guarantee obligations should be considered before the ownership structure is finalized. A structure designed solely around voting control, professional licensing, or internal politics may create a financing problem. Conversely, a financing structure that ignores professional ownership restrictions may create a regulatory problem.
Why sellers should address financing before accepting an offer
In many sale processes, financing is addressed only after the buyer and seller sign a letter of intent. That sequence can expose the seller to months of avoidable risk.
During exclusivity, the seller may stop communicating with other buyers, disclose extensive confidential information, incur legal and accounting expenses, and divert management time to due diligence. If the lender later determines that the buyer, valuation, cash flow, or structure is unacceptable, the seller must start over, often after losing the opportunity to negotiate with other interested parties.
An advisor with SBA acquisition experience can identify foreseeable issues before exclusivity begins:
- Can historical cash flow support the proposed acquisition debt?
- Are the earnings adjustments likely to withstand lender scrutiny?
- Is the buyer's equity sufficient and properly sourced?
- Does the buyer have suitable experience and management capacity?
- Is adequate working capital included?
- Is the ownership structure compatible with SBA and professional requirements?
- Will a proposed seller note help or hurt financeability, and how much will it defer the seller's proceeds?
- Is the purchase price likely to be supported by an independent valuation?
- Should the transaction use SBA financing, conventional debt, or both?
This analysis cannot guarantee approval. It can identify problems before the seller builds a transaction around an unfinanceable offer.
The rules change
SBA lending requirements are not static. The SBA issued SOP 50 10 8.1 on August 14, 2026, with an effective date of October 1, 2026. The revised SOP includes updated change-of-ownership requirements that lenders and transaction advisors must understand before structuring new acquisitions.
John R. Allen III reviewed the updated provisions, identified issues that could complicate employee-buyout transactions, and shared his observations with SBA lenders. Staying ahead of regulatory changes before they reach a client's closing table is part of what SBA-focused expertise means in practice.
The Allen Business Advisors difference
John R. Allen III is a former commercial loan officer with 15 years of banking experience who now specializes in selling architecture, engineering, and land surveying firms. That background matters because these acquisitions involve both industry-specific risks and specialized financing requirements.
Allen Business Advisors evaluates a transaction from the perspectives of the seller, buyer, lender, and operating business. Depending on the transaction, this includes:
- Assessing likely financeability before going to market
- Comparing employee and third-party sale alternatives
- Evaluating buyer qualifications
- Developing defensible earnings adjustments
- Coordinating valuation and lender information
- Structuring seller financing when necessary
- Including adequate working capital
- Anticipating ownership and guarantee issues
- Preparing a transaction package designed to withstand underwriting
Finding a buyer is important. Determining whether that buyer can finance the acquisition is what gets the transaction closed, and the seller paid.
The bottom line
A purchase agreement is a plan for a sale. A funded closing completes the transaction. But the finish line that matters to the person who built the firm is simpler: has the seller received all or nearly all of the sale proceeds at closing?
Everything in between, including cash-flow analysis, earnings adjustments, valuation support, buyer qualification, working capital, and ownership structure, is where a willing buyer and a signed agreement can still fail to produce a completed sale.
Before accepting an offer or approaching prospective buyer-employees, Allen Business Advisors can evaluate whether the business, anticipated purchase price, and proposed transaction structure appear capable of supporting acquisition financing. To discuss the likely financeability of a sale confidentially, contact John R. Allen III.
Frequently asked questions
Can an SBA loan be used to buy an existing business?
Yes. SBA 7(a) loan proceeds may be used for eligible complete and partial changes of ownership. The financing can cover the business acquisition, eligible closing costs, and the working capital the company needs after closing. The business, buyers, purchase price, and transaction structure must meet SBA eligibility rules and the lender's credit requirements.
Does SBA eligibility mean the acquisition will be approved?
No. Eligibility means the transaction may be considered for the program. Approval also depends on repayment ability, buyer qualifications, valuation, equity, creditworthiness, collateral analysis, and the lender's underwriting requirements.
Why should the seller care how the buyer finances the acquisition?
Financing determines whether the buyer can close, how much the seller receives at closing, whether a seller note is required, how long the process may take, and which conditions must be met before funds are released. The buyer applies for the loan, but the outcome determines whether and when the seller is paid.
Can an advisor guarantee SBA approval?
No responsible advisor can guarantee SBA approval. However, every business Allen Business Advisors has pre-screened and presented to a qualified buyer has secured acquisition financing and been funded. Allen Business Advisors reduces financing uncertainty by prequalifying the business before negotiating sale terms with a prospective buyer. Our SBA lending partners review the company's financial performance, anticipated purchase price, and likely transaction structure to assess whether the business appears capable of supporting acquisition financing.
This allows a lender to become familiar with the business and to express preliminary interest before the transaction progresses. Final approval still depends on the buyer, the final transaction terms, and the completion of the lender's formal underwriting process.