SBA 7(a) loans for buying a business
The rules a lender applies when you use an SBA 7(a) loan to buy an existing business, in plain English. Current as of SOP 50 10 8.1, effective October 1, 2026.
What a 7(a) loan is
A bank or other SBA lender lends you the money, and the U.S. Small Business Administration guarantees part of it: 85% of loans up to $150,000 and 75% above that. The guarantee is why banks will lend against a business's cash flow when there is not enough collateral to cover the loan. You apply to the lender, not to the SBA. The largest 7(a) loan is $5 million.
The rules that matter for a purchase
Equity: at least 10% of the total project cost
For a buyer acquiring a business, the required equity is at least 10% of the total project cost: the price plus working capital, closing costs and any financed guaranty fee. The SBA says it cannot be reduced or waived. A seller note on full standby can cover up to half of it. What counts as equity.
Cash flow must cover the payments 1.25 times
The lender looks at the business's last fiscal year, or the average of the last two year-ends, and checks that its earnings cover the new loan payments at least 1.25 times. Your projections are reviewed, but the lender may not rely on them to meet this test. The lender also checks that your household's total cash flow covers all your debts, including personal ones, at least 1 to 1.
A valuation on every deal
Every change of ownership needs a business valuation. When the purchase price, not counting owner-occupied real estate, is $350,000 or less, the lender may value it in-house unless buyer and seller are closely related. Above that, it needs an independent valuation from an accredited appraiser. The lender cannot use a valuation prepared for you or the seller. If you pay more than the valuation, you cover the gap with equity. Deals of $3 million or more also need a quality-of-earnings report.
Term and rate
A loan to buy a business without real estate is repaid over up to 10 years. Real estate can go to 25 years, and a mixed loan can reach 25 years when at least 51% of the money is for real estate. Rates are usually variable, tied to the prime rate, with SBA caps on the spread:
| Loan amount | Maximum variable rate |
|---|---|
| $50,000 or less | Prime + 6.5% |
| $50,001 to $250,000 | Prime + 6.0% |
| $250,001 to $350,000 | Prime + 4.5% |
| Over $350,000 | Prime + 3.0% |
With prime at 7.00% (October 2026), a loan over $350,000 is capped at 10.00%.
The guaranty fee
The SBA charges an upfront fee on the guaranteed part of the loan. For fiscal year 2027 it is 2% on loans of $150,000 or less, 3% on loans from $150,001 to $700,000, and 3.5% on larger loans (3.75% on the part of the guarantee above $1 million). Some manufacturers, food-supply businesses and rural borrowers pay 0% on loans up to $700,000. You can finance the fee into the loan.
Personal guarantees and collateral
Everyone who owns 20% or more gives an unlimited personal guarantee. The lender takes a lien on the business's assets. If the loan is not fully secured, it must also take available equity in personal real estate owned by the borrowers, guarantors and 20%+ owners, unless that equity is under 25% of the property's value. For a business that depends on one owner, the lender requires life insurance for the amount of the collateral shortfall.
Who can borrow
- Every owner and required guarantor must be a U.S. citizen or U.S. national whose principal residence is in the United States or its territories. Lawful permanent residents are no longer eligible.
- Anyone more than 90 days delinquent on a federal debt, or who caused the government a past loss on a federal loan, is not eligible.
- Some businesses are not eligible at all, including passive investment businesses and lenders (the full list is in 13 CFR 120.110 and the SOP). Ask a lender early if you are unsure.
The seller after closing
In a full acquisition the seller may stay only as a consultant, for up to 24 months. Earnouts paid to the seller are not allowed. A seller note is fine, and if it is on full standby (no payments for the life of the 7(a) loan) it can count toward your equity.
Small deals
Loans up to $350,000 can use the 7(a) Small program for a change of ownership. The same 1.25 times cash flow test applies; there is no easier standard for small loans.
Check a deal against these rules
The $99 Loan-Ready Packet applies these rules to the business you want to buy: sources and uses, the 10% equity check, your estimated payment and coverage, and a list of what is still missing. It is a preparation tool, not an approval. Humble Business Brokerage is not a lender and does not refer you to one.
General information, not lending or legal advice. Figures from SBA SOP 50 10 8.1 (effective October 1, 2026) and the FY2027 fee schedule as we understand them; your lender decides.