How to Buy a Small Business: A Step-by-Step Guide
Dylan Gans
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7 min read
To buy a small business, set your budget and criteria, then find and screen businesses. Sign an NDA, review the financials, and make an offer with a letter of intent. Then secure financing, complete due diligence, and close with a purchase agreement and a transition plan. Most first-time buyers use an SBA 7(a) loan, so lender rules shape almost every step.
This guide is for first-time and repeat buyers looking at U.S. businesses worth roughly $500K to $10M. It lays out the steps in order. It also covers the money you need before you start and the mistakes that most often stall a deal.
Before you search: budget and criteria
Work out what you can afford before you look at listings. Under SBA rules in effect as of October 2026, a buyer’s first acquisition with a 7(a) loan needs equity of at least 10% of the total project cost. That minimum cannot be waived. On a $1.5 million purchase, that is at least $150,000, plus closing costs and cash for working capital. Seller debt on full standby (no payments for the life of the SBA loan) can cover up to half of the required equity.
Industry: one to three industries where your experience helps you run the business or judge its risks.
Size: a range of annual cash flow, not revenue. Cash flow pays your loan and your salary.
Location: where you will live, or whether the business can run with a local manager.
Your role: owner-operator, or owner with a general manager already in place.
The 9 steps to buy a small business
1. Talk to a lender early. An SBA lender can tell you how much you are likely to qualify for and what documents you will need. Sellers take buyers more seriously when financing is already in motion.
2. Search listed and off-market businesses. Use online marketplaces, brokers, and direct outreach. Our guides on the best websites to buy a business, finding off-market businesses, and businesses for sale by owner cover each channel.
3. Screen listings on the numbers. Compare asking price, revenue, cash flow, and the multiple before you contact anyone. See how to evaluate a business for sale.
4. Sign an NDA and review the details. Ask for three years of tax returns, profit and loss statements, and a current balance sheet. Then talk with the owner. Our list of questions to ask when buying a business will help you prepare.
5. Submit a letter of intent. An LOI sets the price, structure, financing, timeline, and an exclusivity period. It is usually non-binding on price but binding on confidentiality and exclusivity. Read more about when and how to submit an LOI.
6. Apply for financing. For an SBA change-of-ownership loan, the lender orders an independent business valuation when the business purchase price is above $350,000. If you pay more than the valuation supports, the difference must come from equity. As of October 2026, the lender must also obtain a quality of earnings report when the purchase price is $3 million or more.
7. Complete due diligence. Verify revenue against bank statements and tax returns. Review customer contracts, the lease, licenses, employees, and any liens. Our buying a business checklist lists the documents to request.
8. Negotiate the purchase agreement. Your attorney drafts or reviews the asset or stock purchase agreement, including representations, indemnification, any seller note, and a non-compete.
9. Close and transition. Funds move through escrow or the lender, and ownership transfers. Agree in writing on how long the seller will help after closing. In an SBA-financed first acquisition, the seller cannot stay on as an owner or employee but can work as a consultant for up to 24 months.
Asset purchase or stock purchase
Many small business sales are asset purchases. You buy the equipment, customer relationships, and goodwill, and the seller usually keeps the company’s past liabilities. In a stock purchase you buy the entity itself, including its history. The structure affects taxes for both sides. In an asset sale where goodwill attaches, the IRS requires both buyer and seller to report the sale on Form 8594, so agree on how the price is allocated before closing. See asset sale vs stock sale for the trade-offs.
Common mistakes first-time buyers make
Judging a business by revenue instead of cash flow after debt payments and a fair salary for the person running it.
Waiting until after the LOI to talk to a lender, then learning the price does not fit the loan.
Skipping a review of the lease. A short remaining term or a landlord who will not assign it can sink the deal.
Underestimating how much the business depends on the current owner’s relationships and skills.
Leaving no cash for working capital after closing.
Doing diligence alone. A CPA who knows acquisitions and a deal attorney cost far less than a bad purchase.
How Baton helps buyers
Baton is a marketplace for buying and selling U.S. businesses worth roughly $500K to $100M. As of November 2026, the Baton marketplace shows 1,753 businesses, including companies actively for sale and owners exploring interest.
Each listing shows asking price, gross revenue, adjusted cash flow, and the cash flow multiple. You can sort by any of them.
One platform NDA gives you access to detailed financials and, according to Baton, owner interview videos.
Listed businesses have standardized data rooms with financials such as P&Ls. You can send requests to owners through the platform.
You can filter for SBA loan pre-qualified deals and save a search to get email alerts when new matches appear.
Baton’s Seller Plan includes SBA and bank partnership pre-qualification and loan services for interested buyers.
Read how buying with Baton works or start browsing the businesses for sale.
FAQ
How much money do you need to buy a small business? With an SBA 7(a) loan, plan on at least 10% of the total project cost in equity, plus closing costs and working capital. As of October 2026, a seller note on full standby can cover up to half of that required equity.
How long does it take to buy a small business? It varies with the business, the seller, and financing. Baton says deals on its platform close in an average of about 6 months. SBA lending, diligence, and lease assignment are the steps that most often add time.
Can I buy a business with no money down? Not with standard SBA financing for a first acquisition. As of October 2026, SBA rules require at least a 10% equity injection that cannot be waived. Seller debt on full standby can cover up to half of it.
Is it better to buy a business or start one? Buying gets you existing customers, employees, and cash flow from day one. Lenders can also underwrite a business with a track record. Starting costs less up front but carries more risk while you build revenue.
Do I need a business broker to buy a business? No. Brokers usually represent the seller, so many buyers search on their own and hire their own CPA and attorney for diligence and the purchase agreement. Read our SBA 7(a) financing guide if you plan to borrow.
Sources
SBA SOP 50 10 8.1, effective October 1, 2026, Appendix 15, changes of ownership
Baton marketplace, checked November 2026
Baton: How buying with Baton works, checked November 2026
Baton home page, checked November 2026
Baton pricing, checked November 2026