Buying an Existing Business: How Acquisition Financing Works
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Ten years in business banking before co-founding Lending Gurus. · Updated Nov 12, 2026
Buying a business that already has customers, a team and a few years of tax returns is one of the most common ways people become owners. You skip the blank page. You also inherit someone else’s numbers, and lenders will read those numbers line by line before anyone talks about terms.
For the bigger picture, read my working capital loans guide.
This guide walks through how acquisition financing usually gets put together, where an SBA 7(a) loan and a seller note fit, and what lenders tend to ask for. Requirements vary by lender and every partner makes its own decision, so treat this as a map, not a promise.
Why buying is financed differently than starting
When you start a business, a lender is betting on your plan. When you buy one, the lender is looking at history: what the business has earned, whether that cash flow survives the change in ownership, and whether you are the right person to run it.
That changes the conversation in a useful way. A business with steady, documented cash flow gives a lender something real to underwrite. A business whose profit lives mostly in the seller’s head, or in cash that never hit the books, gives them very little. Most of the work in an acquisition is turning the first kind of story into paper a lender can verify.
The usual building blocks of an acquisition deal
Most deals are a stack of a few pieces rather than one big loan.
- A senior loan. The main financing. For small business purchases this is often an SBA 7(a) loan. A conventional bank loan can work when the buyer brings a lot of collateral or already owns a strong business.
- Your equity injection. Cash you put into the deal. On SBA backed acquisitions it is a rule, not a suggestion.
- A seller note. The seller agrees to be paid part of the price over time. It tells a lender the seller believes the business will keep performing after they leave.
- Working capital. Money to run the place after closing: payroll, inventory, the first few months of surprises. Buyers forget this one more than any other.
How an SBA 7(a) loan fits
The SBA does not lend the money. A participating lender makes the loan and the SBA backs a portion of it, which makes lenders more willing to finance things like goodwill that have no hard collateral behind them. The 7(a) program caps loans at $5 million, and the lender decides the actual amount, rate and terms within SBA rules.
A few SBA rules shape almost every acquisition:
- Equity injection. Under the SBA’s current rulebook (SOP 50 10 8.1), a full change of ownership requires the buyer to put in at least 10% of total project costs, and for an initial acquisition that requirement cannot be reduced or waived.
- Where that equity can come from. Cash you did not borrow counts, including a documented gift. Some limited sources, such as a seller note on full standby, can count too, but together those limited sources can cover no more than half of the required injection.
- Personal guarantees. Anyone who will own 20% or more of the business should expect to personally guarantee the loan.
- Valuation. Lenders typically want an independent business valuation to support the price, especially when much of it is goodwill.
For a full overview of SBA programs, requirements, and terms, see my guide to SBA loans. SBA rules get revised every so often. Your lender will work from the version in effect when you apply, so confirm the details with them.
Run the purchase price, your down payment and a 10 year term through our SBA loan calculator to see if the business’s cash flow covers the payment.
Seller notes: the piece most buyers underuse
A seller note is a loan from the seller to you for part of the purchase price. It can close the gap between what a lender will finance and what the seller wants, and it keeps the seller invested in a clean handoff.
On SBA deals there is a catch worth knowing early. For a seller note to count toward your equity injection, it has to be subordinated to the lender and on full standby. That means no principal or interest payments for the entire term of the SBA loan. Interest can accrue and get paid later, but the seller waits. Plenty of sellers say no once they understand that. Others accept a regular note that is not on standby, which can still help the deal but does not count toward your 10%.
Have this conversation with the seller before you sign a letter of intent, not after.
What lenders want to see
Expect a long document list. Pulling it together before you apply is the best thing you can do to avoid weeks of back and forth.
From the seller and the business
- Business tax returns and financial statements, usually for the last three years
- A current year to date profit and loss statement and balance sheet
- A written explanation of any add backs, meaning expenses the seller ran through the business that you will not have
- Lease terms, key customer details and major supplier agreements
- The letter of intent or purchase agreement
From you
- Personal tax returns and a personal financial statement
- A resume that shows why you can run this business, ideally with industry or management experience
- Proof of where your equity is coming from, often bank statements showing the money has been sitting in your account
- A short plan with your projections for the first year or two under your ownership
For a deeper list, see my guide to business loan documents and the overview of SBA loan requirements.
Cash flow is the real test
Lenders care about one question more than any other. After you pay yourself a reasonable salary, does the business still cover the new loan payments with room to spare?
This is where add backs get picked apart. Say a seller shows $150,000 in profit plus $60,000 in add backs for personal travel, a family member on payroll who does not work there, and a one time legal bill. A lender may accept some of those and reject others. Then they subtract a fair salary for you, because you will be doing the work the seller used to do. Whatever is left has to carry the debt. Illustrative example.
If the deal only works when every single add back is accepted, assume the lender will notice the same thing you just did.
Common deal killers
- Tax returns that do not match the financial statements
- Revenue tied to one big customer or to the seller personally
- A lease that runs out soon after closing with no renewal option
- No working capital in the plan
- An equity injection the lender cannot trace
- A price well above what the valuation supports
A simple order of operations
- Get your own house in order: credit, a personal financial statement and proof of funds for your equity.
- Ask for the seller’s financials early and go through them with a CPA.
- Talk structure with the seller before the letter of intent, including whether a seller note is on the table and on what terms.
- Sign the letter of intent and start lender conversations with a complete package.
- Plan for due diligence: valuation, lease review, licenses and anything specific to your industry.
- Close with working capital already lined up.
Where Guru fits
Guru is not a lender. Guru asks a few questions about you, the business you want to buy and the deal you are putting together, then matches you with funding partners who may be a fit. Those partners review your information and make every decision, including whether to offer financing and on what terms. Starting a conversation is free and does not commit you to anything.
FAQ
How much do I need to put down to buy a business?
For an SBA 7(a) acquisition loan on a full change of ownership, the current rule is an equity injection of at least 10% of total project costs. Conventional lenders set their own requirements, and some ask for more.
Can a seller note count as my down payment?
On an SBA loan, only if it is subordinated and on full standby, with no principal or interest payments for the life of the SBA loan. Even then, limited sources like a standby seller note can cover no more than half of the required injection.
Can I buy a business in an industry I have never worked in?
It happens, but lenders weigh management experience heavily. Related experience, a longer transition period with the seller, or a strong manager who stays on can all help your case.
Should I talk to a lender before I find a business?
Yes. Knowing roughly what you can support, and where your equity will come from, keeps you from chasing deals that will not finance.
This article is general information, not legal, tax or financial advice. SBA rules change, so confirm current requirements with your lender and talk to a CPA or attorney about your specific deal.