The SBA 7(a) loan is the U.S. Small Business Administration's primary loan program and the main financing tool for buying a small business, including architecture, engineering, and surveying firms. A bank makes the loan and the SBA guarantees a large share of it, which lets the bank finance an acquisition with a 10 percent equity injection, often structured so the buyer brings as little as 5 percent down.
Terms that matter on acquisition deals
7(a) acquisition loans run up to $5,000,000 per loan, on a 10-year fully amortizing term with no balloon payment. The SBA caps the rate at Prime plus 2.75 percent floating, adjusting quarterly, and the actual rate reflects the bank's cost of funds plus risk. One loan can cover the purchase price, goodwill, working capital, and closing costs. Portions of a deal above SBA limits are typically handled with a seller note or other negotiated consideration.
What lenders require
The required equity injection is 10 percent of total project cost. Lenders generally want a personal credit score of 680 or higher, three years of business tax returns, and a DSCR of at least 1.25 on historical cash flow. Individuals owning 20 percent or more must personally guarantee the loan, and every loan needs at least one guarantor. The business itself is the collateral, and under SBA policy a collateral shortfall is not, by itself, a reason to deny the loan. Expect 45 to 90 days from application to closing.
Why sellers care about a buyer's loan program
Because the loan program determines when the seller gets paid. A 7(a) financed buyout pays the seller the proceeds in cash at closing, and SBA rules prohibit earn-outs, so there are no contingent payments tied to the firm's future performance. That is the financial engine behind every Step-Up Legacy Plan transaction: the employees become owners, the bank takes the repayment risk, and the seller leaves the table paid.
