To buy an existing business you typically fund the purchase with a layered stack: a buyer down payment (often 10-20% of the price), a bank or SBA 7(a) acquisition loan for the bulk, seller financing to bridge the gap, and revenue-based working capital to cover the transition. No single product usually does the whole deal, and the smartest buyers line up the transaction capital and the operating cash separately. Acquisition lenders fund the price; they rarely leave you with enough on day one to make payroll, restock, and absorb the dip in sales that almost every ownership change produces. Below we break down every funding path, when each one fits, and how a revenue-based advance underwritten on the target's bank deposits, not your personal credit, can supply the transition cushion in 24-48 hours.
Key takeaways
- Buying a business usually requires two separate pools of money: transaction capital to pay the seller and operating capital to run the business after close.
- SBA and bank acquisition lenders generally want a buyer down payment of roughly 10% or more of the deal.
- Seller financing commonly covers 10-40% of the purchase price and can reduce the cash needed at close.
- Revenue-based working capital is approved on business bank deposits and revenue, not personal credit: min ~$10,000, FICO 500+ considered, decisions in 24-48 hours.
- Use revenue-based funding for the transition cushion, not to pay the purchase price itself.
- A practical operating cushion after close is roughly 60-90 days of core expenses to absorb the ownership-transition dip.
- No legitimate funder guarantees approval; speed and cash-flow-flexible repayment are real, guarantees are a warning sign.
The two kinds of money in every acquisition
Every business purchase involves two distinct pools of capital, and confusing them is the most common reason a deal stalls or a new owner runs out of cash in month two.
- Transaction capital pays the seller. This is the purchase price, closing costs, escrow, legal, and any inventory or equipment adjustments. It is a one-time need, usually funded by a down payment plus a term loan (bank, SBA, or seller note).
- Operating capital keeps the business running after you own it. This is payroll, rent, supplier deposits, marketing, and the buffer for the sales dip that follows almost any ownership transfer. It is an ongoing, cash-flow need.
Acquisition lenders fund the first pool and assume the business's own cash flow covers the second. In practice, transitions are messy: key customers wait to see the new owner, a few employees leave, vendors ask for cash terms until they trust you. Buyers who close with no operating cushion are the ones who scramble. Plan both pools before you sign the LOI.
The full menu of acquisition funding
Most real-world purchases combine three or four of these, not just one:
- Buyer down payment (equity). Cash you put in from savings, a retirement rollover (ROBS), or a home equity line. SBA lenders generally want to see 10% or more of the total project as buyer injection, and up to half of that can sometimes be a standby seller note.
- SBA 7(a) acquisition loan. The workhorse for buying a business with real cash flow. Terms up to 10 years (longer if real estate is involved), competitive rates, but underwriting is slow (30-90 days), paperwork-heavy, and hinges on the target's tax returns and your credit and experience.
- Conventional bank acquisition loan. Faster than SBA for strong borrowers with collateral, but harder to qualify for on a pure goodwill business with no hard assets.
- Seller financing. The seller carries a note for part of the price, paid from the business's future cash flow. Signals the seller believes in the business and reduces the cash you need at close. Common range is 10-40% of the price.
- Earn-outs. A slice of the price paid over time and tied to the business hitting performance targets. Reduces upfront cash and aligns you with the seller.
- Revenue-based funding / MCA marketplace. Working capital approved on the business's bank deposits and revenue rather than your personal credit. Best used for the transition cushion and post-close needs, not for the purchase price itself.
Where revenue-based funding fits (and where it doesn't)
Revenue-based funding is not an acquisition loan and should not be used to pay the seller. Its job is the operating pool: the working capital that carries the business through the ownership handoff. Because approval is driven by the target's (or your existing business's) bank deposits and monthly revenue rather than your FICO, it clears fast and is realistic for buyers whose personal credit took a hit from carrying deal costs.
- Typical fit: min funding around $10,000, FICO 500+ considered, decisions in 24-48 hours, repaid as a fixed small share of daily or weekly deposits so the cost flexes with the season.
- Underwriting looks at: 3-6 months of business bank statements, average monthly revenue, deposit consistency, and existing advance positions, not tax returns or a full credit workup.
- What it is not: it is never guaranteed, and it is priced for speed and flexibility, so it is a transition tool, not permanent capital. Reserve it for the cushion and short-term needs, then let the business's cash flow or a term loan carry the rest.
A common structure: SBA or bank loan funds the price, seller note bridges the down-payment gap, and a revenue-based advance provides the 60-90 day operating buffer so you never miss payroll while customers get used to the new sign on the door. See our business acquisition financing pillar for how the transaction stack is built, and our working capital guide for sizing the transition cushion.
Decision framework: works best when / avoid when
Use revenue-based funding for the operating side of an acquisition when the profile fits, and skip it when a slower, cheaper product is the right call.
Works best when:
- You need transition working capital in days, not months, and the SBA loan is still in underwriting.
- The target (or your existing operating company) has steady, verifiable bank deposits you can show.
- Your personal credit is below bank thresholds (FICO 500-650) but the revenue is real.
- You want repayment that flexes with sales during an uncertain first quarter of ownership.
- The amount needed is modest relative to revenue, a cushion, not the whole purchase price.
Avoid when:
- You are trying to fund the purchase price itself, use an SBA 7(a) or bank acquisition loan.
- The business has thin, erratic, or seasonal-only deposits that a fixed remittance would strain.
- You already carry multiple advance positions and adding another would stack the cash flow past what daily deposits can absorb.
- You have time and strong credit, a term loan will almost always cost less over the life of the money.
- Anyone promises the deal is "guaranteed", walk away from that language entirely.
A realistic funding stack (example)
The figures below are for illustration only, to show how the pools combine on a small acquisition. Your actual terms depend on the target's financials, your profile, and the lenders involved.
| Funding layer | Purpose | Example share of a $400,000 deal | Speed |
|---|---|---|---|
| Buyer down payment (equity) | Buyer injection / skin in the game | For example ~$40,000 (10%) | At close |
| SBA 7(a) acquisition loan | Bulk of the purchase price | For example ~$280,000 (70%) | 30-90 days |
| Seller financing (standby note) | Bridges the gap, aligns the seller | For example ~$80,000 (20%) | At close |
| Revenue-based working capital | Transition cushion: payroll, inventory, buffer | Sized to revenue, e.g. a $20,000-$40,000 advance | 24-48 hours |
Note how the down payment, SBA loan, and seller note together cover the price, while the revenue-based advance sits outside the transaction to protect cash flow after you take over. We deliberately do not compute total payback dollars here; a reputable funder will walk you through the factor, the remittance, and the true cost in plain terms before you sign.
How to prepare before you apply
Whichever mix you choose, the diligence that gets you funded is the same diligence that protects you as a buyer:
- Get 2-3 years of the seller's tax returns and P&Ls, plus the last 6-12 months of bank statements. Revenue-based underwriters read the deposits; SBA lenders read the returns. Both should tell the same story.
- Reconcile deposits to reported revenue. If bank deposits don't line up with the P&L, expect questions, and treat unexplained gaps as a red flag on the business itself.
- Map the transition risks. Customer concentration, key-employee dependence, expiring leases, and supplier terms all affect how much operating cushion you need on day one.
- Line up operating capital before close, not after. A revenue-based approval can be arranged in parallel with your acquisition loan so the cushion is ready the day you take over.
- Know your existing positions. If you or the target already carry advances, disclose them; stacking beyond what deposits can absorb is the fastest way to choke a new owner's cash flow.
Common mistakes new owners make with acquisition funding
- Buying with zero operating cushion. The single most common cause of a rough first quarter. The purchase loan funds the seller, not your payroll.
- Over-leveraging on day one. Maxing the acquisition loan and then adding aggressive short-term debt leaves no room for the inevitable transition dip.
- Using an advance to pay the seller. Revenue-based funding is transition capital, not transaction capital; using it for the price mismatches the tool to the job.
- Ignoring the deposit story. If you can't verify the target's revenue in its bank statements, you can't fund it responsibly, and neither can any honest lender.
- Chasing "guaranteed" approvals. No legitimate funder guarantees approval. Speed and flexibility are real; guarantees are a warning sign.
Frequently asked questions
Can I buy a business with no money down?
Rarely, and it's risky. Most acquisition lenders, including the SBA, want to see a buyer injection of roughly 10% or more, though part of that can sometimes come from a standby seller note. A true zero-down deal usually means heavy seller financing plus an earn-out, and it still doesn't solve your need for operating cash after close. Even if you minimize the down payment, plan a working-capital cushion for the transition.
What credit score do I need to buy an existing business?
It depends on the product. SBA and conventional acquisition loans generally want good personal credit (often 650+) plus industry experience. Revenue-based working capital used for the transition is more flexible, with FICO 500+ considered, because approval is driven by the business's bank deposits and revenue rather than your personal score. If your credit took a hit carrying deal costs, the revenue-based path can still fund the operating cushion.
How long does acquisition funding take?
The purchase loan is the slow part. SBA 7(a) commonly runs 30-90 days; conventional bank loans can be faster for strong, collateralized borrowers. Revenue-based working capital for the transition is fast, often a decision in 24-48 hours on 3-6 months of bank statements, which is why buyers arrange it in parallel so the operating cushion is ready at close.
Should I use a merchant cash advance to buy a business?
Not for the purchase price. Revenue-based funding and MCAs are working-capital tools sized to the business's cash flow, best used for the transition cushion, payroll, and inventory after you take over, not to pay the seller. Match the tool to the job: term loans fund the price, revenue-based advances protect the cash flow around the handoff.
How much working capital should I have after buying a business?
Enough to cover the transition dip most ownership changes produce. A practical starting point is 60-90 days of core operating expenses, payroll, rent, and supplier commitments, plus a buffer for customers and vendors adjusting to new ownership. The exact amount depends on customer concentration, seasonality, and how much of the purchase you financed. Sizing this before close, not after, is what keeps a new owner out of trouble.
What documents do lenders want when I buy an existing business?
For the acquisition loan: the seller's 2-3 years of tax returns and P&Ls, a business valuation or purchase agreement, and your personal financials and resume. For revenue-based transition capital: typically 3-6 months of the business bank statements showing deposit consistency and average monthly revenue. In both cases, deposits should reconcile to reported revenue, mismatches are a red flag on the business, not just your application.
Is seller financing a good idea when buying a business?
Often yes. A seller note reduces the cash you need at close and signals the seller believes the business will keep performing, since they're getting paid from its future cash flow. It commonly covers 10-40% of the price and can count toward part of your SBA buyer injection when structured as a standby note. It pairs well with a revenue-based cushion so you're covered on both the price and the operating side.
What's the difference between transaction capital and operating capital?
Transaction capital pays the seller, the purchase price and closing costs, funded once by a down payment plus a term loan or seller note. Operating capital keeps the business running after you own it, payroll, inventory, and the transition buffer, and it's an ongoing cash-flow need. Acquisition lenders fund the first and assume the business covers the second, which is why buyers arrange revenue-based working capital separately.
