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Basic Eligibility Requirements for an SBA Business Acquisition Loan

Date Published: November 16, 2022 Last Updated: December 22, 2025

For most entrepreneurs, buying an existing business or franchise is only possible with some form of financing. There are options to get traditional loans from a bank, take on investors, negotiate seller financing, or borrow money from friends and family.

The first stop for savvy business operators, though, is often an SBA guaranteed loan. Borrowers benefit from some of the best interest rates available, flexible repayment terms, and modest down equity injection ("down payment") requirements. Lenders benefit thanks to the backing of the Small Business Administration, allowing them to minimize risk. Many business sellers will get their business pre-approved by an SBA lender (or position it as "SBA financeable") as a way to entice buyers.

While SBA loans are the most business-friendly options out there, borrowers still need to meet certain criteria. Read on to learn about the five main eligibility requirements lenders focus on when underwriting an SBA loan for a business acquisition.

1. Equity Injection ("Down Payment) — What to Expect

A 10% minimum equity injection is still the most common baseline for many SBA business acquisition loans — especially for a complete change of ownership. But it’s important to understand two things:

10% is a minimum in many common scenarios — not a guarantee.
Depending on risk, lenders can (and do) require more.
The “down payment” conversation is no longer best explained by a simple loan-size split.
Older rules of thumb like “10% down over $350K and 20% down under $350K” can be misleading. Today, lenders focus more on the risk profile of the deal than the loan amount alone.

Just as important: the down payment should not be an “all in” that leaves the buyer without a rainy day fund.

A successful acquisition loan should be structured with enough post-closing liquidity to support a smooth ownership transition. In many cases, the lender can include a reasonable amount of working capital in the loan to help cover closing costs and early operating needs.

A typical strong structure

Business price (plus loan closing costs) is $600,000 and the buyer puts down $60,000 for a loan of $540,000.

What makes a deal like this “strong” in a lender’s eyes?

The business is correctly priced and has had strong cash flow for several years.
The industry is not recession-prone and the business is in good shape operationally.
The lender is comfortable with the valuation and the overall loan-to-value picture.
The buyer has relevant experience and a solid credit history.
The buyer has cash left after closing (liquidity matters).
The buyer has a stable secondary source of household income (spousal income, investment income, rental income, etc.), which reduces risk.

Not every item above is required — but, in general, the deal needs to be solid for both lender and buyer. Life happens, so lenders expect a few bumps to explain.

Here are examples of issues that can often be worked through:

Medical bills that were resolved.
A divorce that created temporary credit challenges.
Not quite enough cash post-closing — so the lender adds working capital to support the transition.
The buyer lacks direct industry experience but has successfully managed teams, budgets, and operations.
The buyer doesn’t own a home.
The lender wants additional strength, so an additional guarantor is included (spouse, partner, etc.).

Important update: seller financing helps — but the rules are stricter

Seller financing can still be part of an SBA acquisition structure. However, if a seller note is being used to count toward the required equity injection, SBA guidance has tightened in recent updates:

To count as equity injection, a seller note generally must be on full standby for the life of the SBA loan (no principal or interest payments during that period), and
It is typically limited in how much of the injection it can satisfy (often no more than 50% of the required injection).

In plain English: seller financing can still be valuable, but you should not assume it can automatically replace the buyer’s cash injection.

2. Down Payment Sources — “Cash Is King,” But Options Exist

Cash and savings are still the cleanest sources of equity injection. Other acceptable sources often include:

Home equity (e.g., a HELOC), especially if there is outside income to cover the HELOC payments.
A gift from a family member or friend, documented by a formal gift letter (and typically verified).
Retirement funds (such as a rollover structure), depending on the buyer’s situation and professional guidance.
Seller financing, when structured properly (see the standby discussion above).

Be ready to document where the money came from

Lenders will want to verify that your injection is real equity and not undisclosed borrowed funds.

In many cases, lenders will ask to see recent bank statements (often a few months) and will “source” large deposits — meaning, if a big deposit appeared recently, they may ask for documentation showing where it came from.

3. Business Cash Flow — The Deal Has to Pay for Itself

The business cash flow needs to be strong enough to support overhead, operations, new owner salaries and the SBA monthly loan payment.

When calculating business cash flow, keep a few things in mind:

Many small businesses will do what they can to show less profit for tax purposes. Banks understand this and can make certain adjustments to cash flow within reason. You can subtract the previous owner’s excessive benefits and some extraordinary expenses. The seller or the seller’s business broker can provide a list of suggested add backs. You can subtract the previous owner’s excessive benefits and some extraordinary expenses. Common examples include personal auto expense, meals & entertainment, excess insurance & benefits for owners, eliminating or reducing owner salaries
If buying the building, the rent expense can be eliminated
If there is other household income, there may not be a new owner requirement for a salary.
Business cash flow should be consistent and positive but there can be circumstances where this is not the case, which may be okay. An example may be a health issue that is forcing the sale of the business and contributed to a “down” period.

4. Industry Experience — You Don’t Need a Perfect Resume, But You Need a Real Plan

You should have direct experience in the industry of the business you are planning to purchase. If not direct experience, then plan on having solid experience with:

Having run a successful small business
Having experience in the same, or a closely related, industry. For example, it is not uncommon for a widget expert at a large company to buy a small business which supplies some part of that same widget to businesses such as the large business employer.
Managing employees, payroll, budgets, and P&L.

There are other factors which can strengthen the buyer position, such as:

Key employees that will stay on to run the day-to-day operations
The seller agrees to stay on for a period of time to help the buyer learn the ropes and help transition key relationships with vendors and customers.
Key relationships with the business such as with suppliers or customers

5. Personal Credit History and Background

Be upfront with the bank if there are any derogatory marks or background issues so they can be properly addressed. The lender will work with you to provide the proper explanations and documentation during underwriting.

For smaller SBA 7(a) loans (often called “7(a) Small”), lenders generally use the FICO SBSS score as part of the prescreening process. The SBSS score is on a 0–300 scale — and the current published SBA minimum for 7(a) Small loans is 165 (some banks require higher).

What about lower scores, bankruptcies, or past issues?

Many bankruptcies result from reasonable life events (divorce, medical issues, etc.). If the score has recovered and there are no current issues, the lender may be comfortable — but it depends on the full picture.
A poor credit pattern (recent delinquencies, unresolved collections, major instability) is harder to overcome.
Government debt issues (like delinquent student loans or other federal obligations) can create eligibility problems — so bring these up early.

For more on SBA loans to buy a business, see Demystifying SBA Loans for Buying a Business or Franchise.