Buying an Existing Business: How to Fund the Deal

You fund the purchase of an existing business by stacking several sources against the purchase price: your own cash injection, an SBA 7(a) acquisition loan (the workhorse for deals under roughly $5 million), a seller note that carries part of the price, and revenue-based or MCA working capital to cover the cash-flow gap in the first months after you take the keys. No single product covers the whole deal well, and lenders expect to see a blend. The acquisition loan buys the company; the working-capital layer keeps it running while you learn the operation and rebuild the pipeline. Approval on the acquisition side turns on the target's historical cash flow and your relevant experience; approval on the fast working-capital side turns on bank deposits and revenue rather than your personal credit score.

The capital stack for a business acquisition

Buying a going concern is different from starting one: you are buying existing revenue, customers, staff, and cash flow, which is exactly why lenders will fund a purchase they would never fund as a startup. But the price almost never comes from one place. A typical small-business acquisition is assembled in layers, each doing a job the others can't.

• Buyer cash injection (equity). SBA 7(a) rules require a minimum 10% equity injection on a full change-of-ownership; lenders often want more. This is your skin in the game and it is non-negotiable on bank-backed deals.
• SBA 7(a) acquisition loan. The primary tool for main-street acquisitions up to $5 million. Long amortization (often 10 years for a business-only deal, up to 25 when real estate is included) keeps the monthly payment inside the target's cash flow.
• Seller financing / seller note. The seller carries a slice of the price as a note you pay over time. This lowers the cash you need to raise and signals the seller believes in the business. On SBA deals, a properly structured standby seller note can even count toward part of your equity.
• Revenue-based / MCA working capital. Fast capital sized to the business's deposits, used for the post-close cash-flow gap, payroll continuity, inventory, or a quick add-on, not for the purchase price itself.

Think of it this way: the acquisition loan and seller note buy the business; the working-capital layer runs it while you stabilize. Most first-time buyers underestimate the second job.

SBA 7(a): the primary acquisition tool

For most main-street purchases in the US, the SBA 7(a) loan is the anchor of the deal. It exists precisely to fund things conventional banks won't touch alone, and a change-of-ownership is a core use case. The appeal is the terms: long amortization spreads the payment out so the target's own cash flow can service the debt, and the SBA guarantee gets a deal approved that would otherwise be declined.

What underwriters actually scrutinize on a 7(a) acquisition:

• The target's historical cash flow. The business must show enough profit (typically measured as debt-service coverage of roughly 1.15x to 1.25x or better) to cover the new loan payment and pay you a living wage. Three years of tax returns and a current profit-and-loss statement drive this.
• A defensible valuation. Expect a third-party business appraisal. The bank will not lend against a price it can't support with an independent valuation.
• Your experience. Direct industry or management experience materially improves approval odds. Buying a business in a field you've never worked in is the single most common reason a strong-looking deal gets declined.
• Equity injection. At least 10%, structured correctly, and often with part of it allowed to come from a standby seller note.

The trade-off is speed and paperwork. A 7(a) acquisition commonly takes 45 to 90 days to close and demands a full document package. That timeline is why the working-capital layer matters, covered below.

Seller financing and earnouts

Seller financing is one of the most powerful tools in an acquisition, and buyers routinely leave it on the table. When the seller carries a note for part of the price, three good things happen: you raise less cash up front, the seller's continued financial stake keeps them motivated through the transition, and bank underwriters read seller participation as a vote of confidence in the numbers.

Two structures worth knowing:

• Standby seller note. The seller agrees to accept no payments (or interest-only) for a defined period, subordinate to the primary lender. Structured to SBA standards, this can count toward a portion of your required equity injection, directly reducing the cash you need to close.
• Earnout. Part of the price is tied to the business hitting agreed revenue or profit targets after close. Earnouts bridge a valuation gap when you and the seller disagree on what the business is worth, by making the disputed portion contingent on results you can verify.

A practical rule from the underwriting side: a seller who refuses to carry any note or accept any earnout is telling you something about how they view the business's forward prospects. Not always a dealbreaker, but always a question worth asking.

Covering the post-close cash-flow gap

Here is the part first-time buyers miss. The day you take over, receivables may still be collecting under the old owner's terms, a key customer may pause to "see how the new owner does," a supplier may tighten terms until you build a track record, and payroll doesn't wait. Meanwhile your acquisition loan payment has already started. That is the working-capital gap, and it sinks otherwise-sound deals in the first 90 to 180 days.

This is where revenue-based financing (also structured as a merchant cash advance through a marketplace) fits. It is not for buying the business; it is for keeping it liquid while you stabilize. The reason it works in this window: approval is based on the business's bank deposits and revenue rather than on your personal credit or the fresh acquisition, so a buyer who just deployed their cash into a down payment can still access operating capital.

• Typical minimum around $10,000, scaled to monthly deposits
• FICO 500+ considered; the deposit history carries the file
• Funding commonly in 24 to 48 hours once bank statements are reviewed
• Repayment flexes with revenue via a holdback on daily or weekly deposits, so slow weeks cost less cash than fixed installment debt

Approval is never guaranteed, and this capital is deliberately short-term and higher-cost than an SBA loan. Use it as a bridge for a specific, revenue-generating purpose, not as a substitute for properly capitalizing the purchase. If you want the mechanics of how revenue-based approval reads a file, see our guide to revenue-based business financing.

Realistic example: assembling the funding

The figures below are illustrative only, to show how the layers fit together on a small-business acquisition. They are not a quote and not a payment schedule.

Note that the first three rows fund the purchase and sum to the price; the working-capital line sits on top and is sized to operating need after close, not to the sticker price of the deal.

Decision framework: which path fits your deal

An SBA 7(a) + seller-note structure works best when:

• The target has three years of clean, profitable tax returns and defensible books
• You have relevant industry or management experience
• You have at least 10% cash to inject and can wait 45 to 90 days to close
• The price is supportable by an independent valuation

Add a revenue-based / MCA working-capital layer when:

• You'll be cash-thin right after close and need to protect payroll and inventory
• Receivables collect slowly and there's a predictable gap before you rebuild the pipeline
• You want capital in 24 to 48 hours for a specific revenue-generating move, and the business has steady deposits

Avoid leaning on fast working-capital financing when:

• You're tempted to use it to fund the down payment or the purchase price itself (wrong tool, wrong cost)
• The business's margins are already thin and a daily/weekly holdback would starve operations
• You have no clear, near-term use that the capital will help you earn back

Reconsider the whole deal when: the seller won't carry any note or share any records, the target's cash flow can't cover the acquisition payment at 1.15x+, or the price only pencils out if you assume a turnaround you have no plan to execute. In acquisitions, the discipline to walk away is a funding strategy too.

How to prepare so the money moves fast

Whether you're courting an SBA lender or a revenue-based marketplace, the same preparation shortens every timeline. Underwriters approve organized files.

• Get the target's financials in order: three years of business tax returns, year-to-date P&L and balance sheet, and, for the working-capital layer, the last 3 to 6 months of business bank statements.
• Write a real transition plan. Who keeps the key customers warm, how you retain staff, what you change in the first 90 days. Lenders fund buyers who've thought past the closing table.
• Line up the seller conversation early. A willingness to carry a standby note changes your entire capital stack and can be the difference between closing and stalling.
• Separate purchase capital from operating capital in your model. Know the specific dollar figure and purpose of your post-close working-capital need before you ask for it.

For the broader menu of options once you own the business, our small business loans overview maps the products you'll use for growth after the acquisition settles.