The five loans most often used to purchase a business are the SBA 7(a) loan, a conventional bank term loan, seller (owner) financing, revenue-based financing through an MCA/revenue marketplace, and a ROBS rollover of retirement funds. Most real acquisitions stack two or three of these rather than relying on one — an SBA 7(a) note carrying the bulk of the price, a seller note filling part of the gap and proving the seller's confidence, and buyer equity or a ROBS rollover covering the required injection. The right mix depends on the deal size, how clean the target's books are, your credit and liquidity, and how fast you need to close. Below we break down each option in an underwriter's voice: what it funds, who it fits, the trade-offs, and where a faster revenue-based option earns its place when a bank timeline would kill the deal.
Key takeaways
- The five loans most used to buy a business are the SBA 7(a), a conventional bank term loan, seller financing, revenue-based/MCA marketplace funding, and a ROBS retirement rollover.
- SBA 7(a) is the default for most acquisitions: government-guaranteed, up to 10-year terms on goodwill deals, and a buyer equity injection typically around 10%.
- Seller financing lowers cash at close and, on SBA deals, can be placed on standby and counted toward the required equity injection.
- Revenue-based financing approves on bank deposits and revenue over credit — minimum FICO around 500+, funding from ~$10,000, money in 24-48 hours, repayment that flexes with sales, and never guaranteed.
- ROBS lets a buyer deploy retirement funds as equity through a C-corp 401(k) with no early-withdrawal penalty, but demands strict ongoing compliance.
- Most real deals stack two or three of these sources rather than relying on a single loan.
- Conventional term loans favor asset-rich targets and strong buyers; they struggle on light-asset, goodwill-heavy businesses.
1. SBA 7(a) Loan — the default for most acquisitions
The SBA 7(a) is the workhorse of small-business acquisition financing in the US, and for good reason. A bank makes the loan, the Small Business Administration guarantees a large share of it, and that guarantee lets the lender extend terms almost no conventional loan will: up to 10 years on a goodwill-heavy business purchase (longer when real estate is involved), competitive variable rates, and a required buyer equity injection that is typically around 10% of the total project cost. A portion of that injection can often come from a seller note on standby, which reduces the cash a buyer has to bring.
What it funds: the purchase price, closing costs, working capital, and sometimes a modest amount of post-close capital expenditure. Who it fits: a buyer with a 680+ FICO, relevant management experience, and a target with clean, verifiable financials showing consistent cash flow that covers debt service (lenders want a debt-service coverage ratio comfortably above 1.15x). The trade-off: speed and paperwork. Expect 45-90 days to close, a personal guarantee, and usually a lien on business and sometimes personal assets. If the seller's books are messy or the timeline is tight, a 7(a) can stall.
2. Conventional bank term loan — for strong buyers and clean targets
A conventional (non-SBA) term loan comes straight from a bank or credit union with no government guarantee. Because the lender carries all the risk, the bar is higher: stronger buyer credit and liquidity, a larger down payment (often 20-30%), shorter amortization (frequently 5-7 years), and usually hard collateral — equipment, real estate, or receivables — rather than pure goodwill. In exchange, a well-qualified buyer can sometimes close faster than SBA and avoid SBA guarantee fees.
Who it fits: an established buyer acquiring a tangible-asset business (manufacturing, distribution, a practice with real estate) where the collateral supports the loan. Where it struggles: service businesses and light-asset targets where most of the value is goodwill — banks discount goodwill heavily, so the loan often won't stretch to the purchase price without a large equity check. For many first-time buyers, conventional financing is simply harder to qualify for than an SBA 7(a) on the same deal.
3. Seller (owner) financing — the gap-filler that also builds trust
In seller financing, the person selling the business carries part of the price as a note you repay over time, usually 3-7 years. It rarely funds a whole acquisition, but it is one of the most valuable pieces in the stack for two reasons. First, it closes the gap between what a bank will lend and what the seller wants. Second — and underwriters read it this way — a seller willing to hold paper is signaling they believe the business will keep performing after they leave. On many SBA deals a seller note can be placed on standby (no payments for a period) and counted toward the buyer's required equity injection, materially lowering the cash you need at close.
Who it fits: nearly every negotiated acquisition — ask for it. Watch-outs: the seller will want a personal guarantee and often a security interest, and the note's terms must be subordinated correctly to any senior bank debt. Negotiate an earn-out or performance clause if the sale price leans on projections rather than proven history.
4. Revenue-based financing / MCA marketplace — speed and working capital
Revenue-based financing (including merchant cash advances arranged through a revenue marketplace) is not usually the instrument that buys the whole company — but it is the tool that gets deals unstuck and funds the business through the transition. Approval is built on bank deposits and revenue rather than credit score, funding amounts start around $10,000, minimum FICO is roughly 500+, and money can land in 24-48 hours. Repayment flexes with sales through a fixed percentage of daily or weekly deposits, so it rises and falls with the business's cash flow instead of demanding a rigid fixed payment in a fragile first quarter of ownership.
Where it earns its place: covering the buyer's equity injection when your cash is tied up, funding immediate working capital and payroll right after close, or bridging a time-sensitive purchase while a slower SBA package finishes underwriting. Because a marketplace shops your bank statements to multiple funders, you see real offers matched to your actual deposit history rather than one bank's yes-or-no. It is never guaranteed, and the cost of capital is higher than bank debt — so use it for speed and short-term needs, then term it out. If you want to understand the full menu first, start with our guide to business loans and our revenue-based financing pillar.
5. ROBS (Rollover for Business Startups) — buying with retirement funds
A ROBS lets you use eligible retirement savings (a 401(k) or IRA) to fund a business purchase without taking a taxable early-withdrawal or a loan. Mechanically, you form a C-corporation, that corporation sponsors a new 401(k) plan, you roll your existing retirement funds into it, and the plan buys stock in the corporation — putting that capital to work as equity in the acquisition. Because it is equity, not debt, there is no monthly loan payment and no interest, and it can supply the cash injection an SBA lender requires.
Who it fits: a buyer with at least ~$50,000 in rollable retirement funds who wants to reduce or avoid debt, or needs equity to unlock an SBA loan. The trade-off is real risk: you are putting retirement savings into a single business, the structure demands strict ongoing compliance (a C-corp, a plan administrator, annual filings), and getting it wrong can trigger taxes and penalties. Treat ROBS as an equity source used alongside a loan — and only with a specialist administering the plan.
How the five compare (example structures)
The figures below are illustrative, for example only, to show how buyers combine these tools on a mid-sized acquisition. They are not quotes and not a payoff calculation.
| Loan type | Typical role in the deal | Speed to fund | Credit / qualification lean | Best when |
|---|---|---|---|---|
| SBA 7(a) | Carries the bulk of the purchase price | 45-90 days | 680+ FICO, clean books, DSCR >1.15x | Goodwill-heavy service business, first-time buyer |
| Conventional term loan | Senior debt against hard assets | 30-60 days | Strong credit, 20-30% down, collateral | Asset-rich target, well-capitalized buyer |
| Seller financing | Fills the gap, signals confidence | At close | Negotiated; seller sets terms | Nearly every deal — always ask |
| Revenue-based / MCA marketplace | Equity injection, working capital, bridge | 24-48 hours | Revenue & deposits over credit; FICO 500+; from ~$10,000 | Speed matters, cash is tied up, transition funding |
| ROBS | Equity from retirement funds, no monthly payment | 3-4 weeks to set up | ~$50k+ rollable funds; C-corp compliance | Reducing debt / funding the required injection |
A common example stack: an SBA 7(a) covering most of the price, a seller note on standby filling part of the equity requirement, and a short revenue-based advance covering payroll and inventory in the first weeks of ownership — for example, so the new owner isn't draining reserves the day after close.
Decision framework: which loan, when
Lead with an SBA 7(a) when you are a first-time buyer, the target is a healthy service or goodwill-heavy business with clean financials, and you can tolerate a 45-90 day close. It stretches the least buyer cash the furthest.
Choose a conventional term loan when you have strong credit and liquidity and the business is rich in tangible collateral — the bank's risk is covered by hard assets and you may skip SBA fees and paperwork.
Always negotiate seller financing when there is a motivated seller; it lowers your cash at close and, on SBA deals, can count toward your injection on standby terms.
Use revenue-based / MCA marketplace funding when speed decides the deal or the newly acquired business needs working capital immediately — approval rests on deposits and revenue, funding lands in 24-48 hours, and repayment flexes with sales. It is priced for speed, so pair it with cheaper term debt and pay it down as cash flow stabilizes.
Consider ROBS when you have substantial retirement savings, want to minimize debt, or need equity to unlock a bank loan — and you accept the compliance burden and the risk of concentrating retirement funds in one business.
Avoid these tools when…
Avoid SBA 7(a) when the seller's books can't be verified or the timeline is under a month. Avoid conventional debt when the target is light on hard assets — the loan won't reach the price. Avoid over-relying on revenue-based funding for the entire purchase price or as long-term debt — it is a speed-and-working-capital instrument, not a 10-year acquisition note. Avoid ROBS if the retirement funds are your only safety net or you can't sustain the C-corp compliance.
Frequently asked questions
What is the most common loan used to buy a business?
For small-business acquisitions in the US, the SBA 7(a) loan is the most common single instrument. Its government guarantee lets banks offer longer terms and a relatively low buyer equity injection (often around 10%), which is why it's the default starting point for most first-time buyers — especially for service and goodwill-heavy businesses.
Can I buy a business with no money down?
True zero-down deals are rare and usually risky, but you can minimize your cash at close by stacking sources: a seller note on standby counted toward an SBA equity injection, a ROBS rollover supplying equity from retirement funds, and short-term revenue-based funding covering working capital. Lenders still expect the buyer to have skin in the game, so plan on some injection even when it's small.
How fast can I get funding to purchase a business?
It depends on the instrument. SBA 7(a) and conventional bank loans typically take 30-90 days. Seller financing funds at close. Revenue-based financing through an MCA/revenue marketplace can fund in 24-48 hours because approval is based on bank deposits and revenue rather than a long underwriting file — which is why buyers use it to bridge time-sensitive deals or cover immediate post-close working capital.
What credit score do I need to buy a business?
Bank and SBA financing generally want a 680+ FICO plus management experience and clean target financials. Revenue-based financing is far more flexible — funders lead on revenue and deposit history rather than credit, with minimums around FICO 500+ and funding amounts starting near $10,000. That's why lower-credit buyers often use revenue-based funding alongside, not instead of, longer-term debt.
Is seller financing a good idea when buying a business?
Usually yes — always ask for it. A seller note fills the gap between bank financing and the purchase price and lowers your cash at close. Just as important, a seller willing to carry paper is signaling confidence that the business will keep performing after they leave, which underwriters view favorably. On SBA deals the note can often be placed on standby and counted toward your required equity injection.
Can I use my 401(k) to buy a business without penalties?
Yes, through a ROBS (Rollover for Business Startups). You form a C-corporation that sponsors a new 401(k), roll eligible retirement funds into it, and the plan buys stock in the corporation — deploying that capital as equity without an early-withdrawal penalty or taxable distribution. It carries strict ongoing compliance requirements and concentrates retirement savings in one business, so it should be set up with a specialist administrator.
How do buyers typically combine these loans?
Most acquisitions stack two or three sources rather than relying on one. A frequent structure is an SBA 7(a) carrying the bulk of the price, a seller note on standby filling part of the equity requirement, and buyer equity or a ROBS rollover covering the rest — with a short revenue-based advance handling working capital in the first weeks of ownership. The mix flexes with deal size, book quality, and how fast you need to close.
Is revenue-based financing a good way to buy an entire business?
It's rarely the right tool to finance a whole purchase price, and it's never guaranteed. Revenue-based financing is built for speed and working capital — funding in 24-48 hours with repayment that flexes as a percentage of sales. Use it to cover the equity injection, fund the transition, or bridge a time-sensitive deal, then term out onto cheaper bank or SBA debt as cash flow stabilizes.
