Business Acquisition Loans: How to Finance Buying a Business in 2027
Rachel Horner
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9 min read
Financing is one of the biggest factors in whether a small business acquisition gets done. A buyer might have the experience to run a business and enough savings for a down payment, but still need to secure hundreds of thousands or even millions of dollars to complete the purchase.
Fortunately, there are several ways to finance an acquisition. SBA loans, conventional bank loans, seller financing, and investor capital can all play a role, depending on the size of the deal and the financial strength of the business.
Here's how business acquisition loans work, what financing options are available, and what buyers need to know before making an offer.
What Is a Business Acquisition Loan?
A business acquisition loan is financing used to buy an existing business, or to buy out an owner's stake in one. Unlike a startup loan, the lender is underwriting a company with a track record: years of tax returns, customers, and cash flow you can measure.
A lender looks at the business's historical earnings, subtracts what it'll cost to pay you a fair salary, and asks whether what's left covers the loan payment with room to spare. If it does, and you look like a capable operator, you're most of the way to a yes.
The money can cover more than the purchase price. Depending on the loan, it may also fund working capital, closing costs, and sometimes the real estate the business operates from.
Types of Business Acquisition Loans
There's no single "acquisition loan" product. Most deals use one primary loan and often layer in a second source, like a seller note.
Financing type | Typical buyer down payment | Typical term | Best for |
|---|---|---|---|
SBA 7(a) loan | 10% minimum | Up to 10 years (25 with real estate) | Most deals up to $5M |
Conventional bank loan | Often 20–30% | Often 5–7 years | Strong borrowers, larger or asset-heavy deals |
Seller financing | Negotiated | Often 3–7 years | Bridging a gap; often paired with a bank loan |
SBA 504 loan | Usually 10%+ | 10–25 years | Deals where real estate or heavy equipment is most of the price |
Investor equity | Varies | None (ownership, not debt) | Search funds and larger deals |
Online or alternative lenders | Varies | Short, often under 5 years | Small deals or speed, at a higher cost |
SBA 7(a) Loans
SBA 7(a) loans are one of the most common ways to finance a small business acquisition.
The US Small Business Administration (SBA) doesn't lend the money itself. It guarantees a large share of the loan, which lets banks finance deals they otherwise wouldn't, with longer terms and lower down payments.
The SBA 7(a) program tops out at $5 million. For a business acquisition without real estate, terms run up to 10 years, which keeps monthly payments manageable. If the deal includes the building, that portion can stretch to 25 years.
The trade-off is paperwork and rules. SBA loans carry an upfront guaranty fee, require a personal guarantee from anyone owning 20% or more of the business, and follow a detailed rulebook (the SBA's Standard Operating Procedure, or SOP). That rulebook changed twice recently, so advice from even two years ago may be wrong.
Conventional Bank Loans
A conventional loan has no government guarantee, so the bank carries all the risk. Expect a larger down payment, shorter terms, and stricter collateral requirements. In exchange, you skip the SBA's fees and rules, and the process can be faster.
Conventional loans tend to work best for buyers with significant cash or existing business assets, for deals over the SBA's $5 million cap, and for businesses with lots of hard assets a bank can lend against. They're also the main path for anyone who doesn't meet SBA eligibility rules.
Seller Financing
Seller financing allows you to pay part of the purchase price over time through a promissory note called a seller note. It can bridge the gap between what a bank will lend and what you can afford to pay upfront.
It can also make an offer more attractive to a seller. By agreeing to receive part of the purchase price over time, the owner shares some of the risk that the business will continue performing after the sale. It can also give buyers more flexibility when negotiating the purchase price and terms.
For buyers using an SBA loan, there's an additional consideration. The SBA sets specific rules for when a seller can receive payments on a note subordinate to the loan. Those rules can affect how much cash you need at closing.
SBA 504 Loans
The 504 program is built for long-lived fixed assets: real estate and major equipment. It isn't designed to finance goodwill, which is most of what you pay for in a typical service or online business. It's worth a look when the building or the machinery is a big share of the price. Otherwise, 7(a) is the better fit.
Investor Equity
Some buyers raise money from investors instead of (or alongside) a loan. A search fund is the structured version: investors back a searcher's hunt for a business, then fund the purchase. Equity doesn't need monthly payments, but you're giving up ownership and taking on partners with a say.
Online and Alternative Lenders
Online lenders and merchant cash advance providers move fast and approve borrowers banks turn down. They charge for it, with higher rates, shorter terms, and payments that can squeeze a newly acquired business. Treat them as a last resort for an acquisition, not a first call.
Business Acquisition Loan Requirements
Every lender has its own credit policy, but they all ask the same core question: can this business repay this loan under this buyer? Here's what that comes down to.
A business that can carry the debt. Lenders measure this with the debt service coverage ratio (DSCR): the cash flow left after paying the owner a market salary, divided by the annual loan payments. Many lenders want to see at least 1.25x, meaning $1.25 of cash flow for every $1 of debt payment. That cash flow usually starts from seller's discretionary earnings (SDE) or earnings before interest, taxes, depreciation, and amortization (EBITDA).
Clean, verifiable financials. Plan on the business's last three years of tax returns, year-to-date financials, and records that match. If the seller's books and tax returns tell different stories, underwriting slows down or stops. Many buyers order a quality of earnings (QoE) report to confirm the numbers before they commit.
Your own cash. For SBA change-of-ownership loans, the minimum equity injection is 10% of total project costs, which include the purchase price, working capital, and closing costs. Conventional lenders often want more. Lenders also look at what you'll have left after closing. Draining every account to make the down payment is a red flag.
Relevant experience. You don't need to have run this exact type of business, but lenders want evidence you can. Management experience, industry background, or a seller who stays on for a transition period all help.
Personal credit and a personal guarantee. Expect a full credit review. Most acquisition lenders also require a personal guarantee, which means your personal assets can be on the line if the business can't pay.
SBA eligibility. Since March 1, 2026, SBA 7(a) and 504 loans require the business to be 100% owned by US citizens or US nationals with their principal residence in the US, under SBA Procedural Notice 5000-876626. Green card holders are no longer eligible to own any share of an SBA-financed business. If that affects you, a conventional loan or seller financing is the path forward.
Business Acquisition Loan Rates and Costs
SBA 7(a) rates are negotiated with your lender but capped by the SBA, based on the prime rate. For variable-rate loans over $350,000, which covers most acquisitions, the maximum is prime plus 3 percentage points. As of November 2026, the Wall Street Journal prime rate is 7.00%, so the cap on a typical acquisition loan is around 10%.
On top of interest, budget for:
The SBA guaranty fee, a one-time fee calculated on the guaranteed portion of the loan. It's set each fiscal year and is usually rolled into the loan.
Closing costs, including legal fees, a business valuation, and lender packaging fees.
Third-party reports, like a QoE or an equipment or real estate appraisal.
Conventional rates vary more by lender and borrower. They can come in below SBA rates for very strong borrowers, but the shorter terms usually mean higher monthly payments.
Find a Business You Can Finance
The right loan starts with the right business. A deal with verified earnings and organized financials gives lenders what they need to say yes, and gives you a clear picture of what you're taking on.
Baton buyers sign a single NDA to access every listing, and each one comes with standardized financials and a data room, so you can run a quick DSCR check before you dig in. Our advisors can also connect you with SBA lenders who close acquisitions every month.
FAQ: Business Acquisition Loans
How Do You Qualify for a Business Acquisition Loan?
You need a target business with enough cash flow to cover the loan (often 1.25x the annual payments), clean financial records, your own cash for the down payment (at least 10% of project costs for SBA loans), relevant experience, and acceptable personal credit. For SBA loans, all owners must also be US citizens or nationals.
How Do You Get a Loan to Buy a Business?
Know how much cash you can put in and keep in reserve, then prequalify with an SBA Preferred Lender before you make offers. Find a business with clean books and enough cash flow to cover the payments, sign an LOI that's subject to loan approval, and work through the lender's underwriting while you do your own diligence. Most denials come from the business, not the buyer: earnings that don't support the price, or financials that can't be verified.
What Is the Payment on a $1,000,000 Business Loan?
At 9.75% over 10 years, a $1,000,000 loan costs about $13,100 a month, or roughly $157,000 a year. Your actual rate, term, and fees will change that number.
Can You Get 100% Financing to Buy a Business?
Not with an SBA loan. SBA rules require at least a 10% equity injection on a change of ownership, and at least half of that has to come from your own cash, not a seller note or minority investors. Some buyers get close to 100% financing by combining a conventional loan with significant seller financing, but those deals are rare and depend on a motivated seller.
Are There Non-SBA Business Acquisition Loans?
Yes. Conventional bank loans, seller financing, equipment or asset-based loans, and investor equity can all fund an acquisition without the SBA. They're the main options for deals over $5 million and for buyers who don't meet SBA citizenship rules.
Can I Get a Business Acquisition Loan With Bad Credit?
It's difficult. Banks and SBA lenders review personal credit closely, and a low score usually means a larger down payment or a decline. Seller financing is often the most realistic route, since a seller may weigh your experience and the deal over your credit score.