A business acquisition loan is financing you use to buy an existing business, a franchise, a competitor, or a partner's ownership stake, repaid over time out of the acquired company's cash flow. Unlike a startup loan, it is underwritten mostly on the target company's proven revenue and profit, which is why buying an established business is often easier to finance than launching one from scratch. The main paths are SBA 7(a) loans, conventional bank term loans, seller financing, and — for speed or when credit is thin — revenue-based financing tied to the business's bank deposits. Most acquisitions combine two or three of these into one deal. This guide walks through each option with realistic cost and qualification ranges, then shows you how to structure and close a purchase.
Key takeaways
- SBA 7(a) is the most common acquisition loan, typically requiring a minimum 10% down payment — of which up to half can be a seller note on full standby.
- Acquisition approval hinges on the target's cash flow: lenders want a debt-service coverage ratio of roughly 1.15–1.25 or higher.
- Banks and the SBA generally prefer a buyer FICO around 680+; revenue-based lenders can approve much lower — often FICO 500+.
- Realistic timelines: SBA loans take 30–90 days, conventional banks 3–8 weeks, and revenue-based financing often funds in 24–48 hours.
- Most acquisitions combine two or three sources — for example an SBA loan, a seller note, and buyer cash — rather than one loan.
- Revenue-based financing (min ~$10,000) is best used for fast working capital or thin-credit gaps, not as the primary long-term purchase loan.
- No legitimate lender guarantees approval before reviewing your file and the business's financials; terms always depend on the numbers.
What a Business Acquisition Loan Actually Finances
Buying a business is rarely a single lump-sum purchase. The financing usually covers several moving parts, and understanding them helps you size the loan correctly and avoid running short at closing.
- The purchase price — the agreed value of the business, whether structured as an asset sale (you buy the equipment, inventory, contracts, and goodwill) or a stock sale (you buy the legal entity itself).
- Working capital — cash to run the business through the first few months while you learn it and cover payroll, rent, and inventory. Underfunding working capital is one of the most common reasons acquisitions struggle after closing.
- Closing and transaction costs — legal fees, business-valuation or appraisal fees, SBA guarantee fees, escrow, and lien searches. Budget roughly 2% to 5% of the deal on top of the price.
- Partner or equity buyouts — financing one owner's departure so the remaining owners keep control.
- Post-close improvements — equipment repairs, rebranding, or a modest inventory build to stabilize the transition.
A well-built acquisition loan wraps most of these into one facility so you are not scrambling for a second loan in month two.
The Main Ways to Finance an Acquisition
There is no single "acquisition loan." There are several products, each with different costs, timelines, and qualification bars. Most buyers use a combination. The table below shows realistic ranges — treat every figure as a rounded example, not a quote, because your actual terms depend on the business, your profile, and the lender.
| Option | Typical loan size | Example cost of capital | Typical term | Time to fund | Best when |
|---|---|---|---|---|---|
| SBA 7(a) loan | ~$50k–$5M | Prime + ~2.75%–4.75% (variable) | 10 years (up to 25 with real estate) | 30–90 days | You have decent credit and can wait; you want the lowest monthly payment |
| Conventional bank term loan | ~$100k–$5M+ | ~8%–13% APR (example) | 3–10 years | 3–8 weeks | Strong buyer, strong target, existing bank relationship |
| Seller financing | ~10%–60% of price | ~6%–10% interest (example, negotiable) | 3–7 years | At closing | Seller is motivated and wants a clean exit; fills gaps other lenders won't |
| Revenue-based / MCA marketplace | $10k and up | Factor-based; priced on deposits, not APR | Months, not years | Often 24–48 hours | You need speed, have thin credit, or need bridge/working capital the bank won't cover |
| Rollover for business startups (ROBS) | Based on retirement balance | No interest; you use your own funds | N/A | 3–4 weeks | You have $50k+ in a 401(k)/IRA and want to avoid debt or fund the down payment |
In practice, a $600,000 acquisition might be an SBA 7(a) loan for 80% of the price, seller financing for 10% on standby, and 10% cash from the buyer. The revenue-based option is the outlier: it is not usually the primary purchase loan, but it is the fastest way to add working capital or bridge a gap once you own the business.
How Much Money You Need to Put Down
Down payment — often called the buyer's equity injection — is the single biggest surprise for first-time buyers. Lenders want you to have real money at risk so your incentives align with keeping the business healthy.
- SBA 7(a): generally a minimum 10% equity injection on a business acquisition. On a change-of-ownership deal, up to half of that 10% can sometimes come from seller financing that is on full standby (no payments) for the loan's term, meaning as little as 5% needs to be true cash from you.
- Conventional bank: commonly 20% to 30% down, sometimes more, because the bank has no government guarantee to fall back on.
- Seller financing: the down payment is whatever the seller accepts; motivated sellers sometimes go as low as 10% to 20%.
The example below shows how the same $500,000 purchase looks under different structures.
| Structure (example) | Down payment | Financed amount | Notes |
|---|---|---|---|
| SBA 7(a), 10% down, seller on standby | $25,000 cash + $25,000 seller note | $450,000 | Lowest cash out of pocket; slowest to close |
| Conventional bank, 25% down | $125,000 | $375,000 | Faster than SBA, higher cash barrier |
| Seller-financed, 15% down | $75,000 | $425,000 owed to seller | Depends entirely on seller motivation |
Beyond the down payment, keep a separate reserve — a good rule of thumb is three to six months of the business's operating expenses — so a slow first quarter after closing doesn't put you in a hole.
What Lenders Actually Check Before Approving You
Acquisition underwriting looks at two things at once: you as the buyer and the business you are buying. The business usually matters more, because it repays the loan.
On the business, lenders focus on:
- Cash flow coverage. The key metric is the debt-service coverage ratio (DSCR) — the business's adjusted annual cash flow divided by its annual loan payments. Most lenders want a DSCR of at least 1.15 to 1.25, meaning the business earns comfortably more than the loan costs. This is calculated on seller's discretionary earnings (SDE) after "add-backs" like the old owner's above-market salary.
- Clean, verifiable financials. Three years of tax returns, profit-and-loss statements, and a current balance sheet. Gaps between tax returns and internal books are a red flag.
- Business age and stability. Established revenue and a diversified customer base reduce risk. A business where one client is 60% of sales is harder to finance.
- A defensible valuation. Lenders order a third-party business valuation and will not lend against an inflated price.
On you, lenders focus on:
- Credit and character. Banks and SBA lenders typically want a personal FICO around 680+; the SBA also runs its own SBSS score. Revenue-based lenders go much lower — often FICO 500+.
- Relevant experience. You don't always need to have run this exact business, but transferable management or industry experience strengthens the file considerably.
- A personal guarantee and collateral. Nearly all acquisition loans require a personal guarantee, and often a lien on your home or other assets if the deal's collateral falls short.
No legitimate lender will call an acquisition loan "guaranteed" before reviewing your file and the target's financials. Approval always depends on the numbers.
When Revenue-Based Financing Fits an Acquisition
Traditional acquisition lenders underwrite the deal and your credit slowly and thoroughly. That is the right approach for the core purchase loan, but it leaves two gaps that revenue-based financing (sometimes structured through an MCA marketplace) is built to fill.
First: speed and working capital after you own the business. Once the sale closes, you may need cash quickly for inventory, payroll, or an unexpected repair before the business's own deposits stabilize under your ownership. A revenue-based advance is approved mainly on the business's bank-deposit history and monthly revenue rather than on your credit score, with minimums around $10,000 and funding often in 24 to 48 hours.
Second: buyers with thinner credit. If your personal FICO is below the ~680 that banks and the SBA prefer — but above roughly 500 — and the business shows healthy, consistent deposits, a revenue-based lender may approve when a bank declines. It is priced as a factor on revenue, not as a traditional APR, so it is more expensive than an SBA loan and is best used for short, revenue-generating needs rather than as a decade-long mortgage on the whole purchase.
A common, sensible pattern: use an SBA or seller-financed loan for the purchase itself, then keep a revenue-based line in reserve for the working-capital surprises that always follow a transition. Because approval leans on the business's deposits and revenue, it is one of the few options a first-time owner with average credit can access fast.
How to Structure the Deal So It Closes
The financing and the deal terms are two sides of the same coin. A few structural choices make an acquisition far more fundable.
- Asset sale vs. stock sale. Most buyers and lenders prefer an asset sale: you buy the assets and goodwill but leave behind the seller's unknown liabilities and legal history. Sellers often prefer a stock sale for tax reasons. This is negotiated, and it affects both risk and price.
- Seller financing as a bridge. Even a small seller note — 10% to 20% of the price — signals the seller believes in the business and can satisfy part of an SBA equity requirement when placed on standby.
- Earnouts. Tie part of the price to the business hitting agreed revenue or profit targets after closing. This protects you if the seller's projections were optimistic.
- A transition period. Negotiate for the seller to stay on for 30 to 90 days (or a consulting arrangement) to hand off relationships and know-how. Lenders view a clean transition as lower risk.
- A non-compete. Prevent the seller from opening a competing business next door and taking the customers you just paid for.
Line these terms up in the letter of intent before you spend money on due diligence, so the deal you finance is the deal you actually want.
Step-by-Step: From First Look to Funded
A realistic timeline for a financed acquisition runs 30 to 90 days from accepted offer to close. Here is the sequence most successful buyers follow.
- Pre-qualify yourself first. Know your credit, your available cash for a down payment, and roughly what loan size your income and reserves support. This tells you the price range you can actually pursue.
- Find the target and sign an NDA. Get access to the seller's financials — tax returns, P&Ls, and a balance sheet — for the last three years.
- Run the numbers. Calculate seller's discretionary earnings and check whether the price and the likely loan payment leave a healthy debt-service coverage ratio. If the business can't cover the loan plus your salary, walk away.
- Submit a letter of intent (LOI). A non-binding LOI sets price, structure (asset vs. stock), seller financing, transition terms, and an exclusivity window for due diligence.
- Apply for financing. Line up your primary loan (SBA, bank, or seller) and, if you'll need fast working capital, pre-arrange a revenue-based option. Provide the lender the business's financials and your personal documents.
- Complete due diligence. Verify financials, contracts, leases, licenses, and any liabilities. Order the third-party business valuation the lender requires.
- Sign the purchase agreement and close. Funds are disbursed, liens are filed, and ownership transfers. Have your working-capital reserve in place on day one.
The buyers who close smoothly are almost always the ones who arranged financing early rather than after the seller accepted their offer.
Common Mistakes That Sink Acquisition Financing
Most acquisition loans that fall apart do so for avoidable reasons. Watch for these.
- Underfunding working capital. Borrowing exactly the purchase price and nothing more leaves no cushion for the transition. Build reserves into the loan.
- Overpaying on the seller's projections. Finance the business as it performs today, not as the seller hopes it will perform after you "fix" it.
- Ignoring the debt-service coverage math. If the loan payment plus a fair salary for you exceeds the business's real cash flow, the deal doesn't work no matter how attractive the business looks.
- Waiting until the offer is accepted to seek financing. This wastes your exclusivity window and can cost you the deal.
- Treating fast money as the whole solution. Revenue-based financing is excellent for speed and working capital but expensive as a substitute for a properly structured purchase loan. Match the product to the job.
Frequently asked questions
Is it easier to get a loan to buy an existing business than to start one?
Usually, yes. An established business has a track record of revenue and profit that lenders can underwrite, which is far less risky than a startup with only projections. That proven cash flow is what repays the loan, so buyers of stable, profitable businesses often find financing more accessible than founders launching from scratch.
How much do I need for a down payment?
For an SBA 7(a) acquisition loan, the minimum equity injection is generally 10% of the project cost, and up to half of that can sometimes come from a seller note on full standby — meaning as little as 5% in true cash from you. Conventional bank loans typically want 20% to 30% down. Seller-financed deals depend on how motivated the seller is.
Can I buy a business with bad credit?
It is harder but not impossible. Banks and the SBA generally prefer a personal FICO around 680 or higher. If your credit is thinner — roughly 500 and up — a revenue-based lender may still approve financing based mainly on the business's bank-deposit history and monthly revenue rather than your score. That path is faster and more accessible, though more expensive, and works best for working capital rather than the entire purchase.
What is the debt-service coverage ratio and why does it matter?
DSCR is the business's adjusted annual cash flow divided by its annual loan payments. It tells the lender whether the business earns enough to comfortably cover the debt. Most lenders want at least 1.15 to 1.25, meaning the business generates 15% to 25% more cash than the loan costs. If the loan payment plus a fair salary for you exceeds the business's real cash flow, the deal generally won't be approved.
How long does it take to close a financed acquisition?
Plan on 30 to 90 days from an accepted offer to closing. SBA loans are the slowest because of documentation and the valuation and guarantee process; conventional bank loans run about three to eight weeks. Revenue-based financing is the fastest option and often funds within 24 to 48 hours, which is why buyers use it to bridge working capital rather than to fund the core purchase.
Should I use seller financing?
Often, yes — even a small seller note is valuable. It reduces the cash you need at closing, and a seller who finances part of the price signals confidence in the business. On SBA deals, a seller note placed on full standby can satisfy part of your required equity injection. Just be sure the terms and any standby conditions are clear in the purchase agreement.
What is the difference between an asset sale and a stock sale?
In an asset sale you buy the equipment, inventory, contracts, and goodwill but leave the seller's legal entity — and its unknown past liabilities — behind. In a stock sale you buy the entity itself, inheriting everything, including liabilities. Most buyers and lenders prefer asset sales for the cleaner risk profile; sellers often prefer stock sales for tax reasons, so it becomes a negotiating point.
Can I use my retirement savings to buy a business?
Yes, through a Rollover for Business Startups (ROBS) arrangement, which lets you invest funds from a 401(k) or IRA into the business without an early-withdrawal penalty or taxes. Buyers often use ROBS to cover the down payment or equity injection on an SBA loan. It has strict compliance rules, so set it up with a specialized provider and understand that you are putting retirement savings at risk.
