How does an SBA loan to buy a business work?

Who borrows, and who guarantees?

The borrower is a business entity, usually a company you form to make the purchase. In an asset purchase, that company buys the assets. In a stock purchase, it buys the shares. Your lender and lawyer set the exact structure, including whether a parent company also signs.

The people behind the borrower carry the risk:

• Every owner of 20% or more personally guarantees the loan.
• A trust that owns any percentage must guarantee, and the trustor must guarantee personally.
• In a partial change of ownership, a seller who keeps equity gives a full personal guaranty for at least 2 years after disbursement. That structure must be a stock or membership-interest purchase.
• Effective March 1, 2026, the business must be owned by U.S. citizens or U.S. nationals with a U.S. principal residence.

The $5 million 7(a) cap counts the borrower and its affiliates together. If you already own a business with SBA debt, that debt uses part of your capacity.

What does the SBA guarantee do?

The guarantee covers part of the lender's loss if the loan defaults. It reduces the lender's risk. It does not reduce what you owe. If the business fails, the lender collects from the business and then from the guarantors.

The borrower pays for the guarantee. For FY2026, on loans over 12 months, the upfront fee is 2% of the guaranteed portion on loans up to $150,000; 3% from $150,001 to $700,000; and 3.5% from $700,001 to $5 million on the guaranteed portion up to $1 million, plus 3.75% above that.

The rules lenders apply come from the SBA's Standard Operating Procedure. As of October 2026, that is SOP 50 10 8.1 for loans that receive an SBA loan number on or after October 1, 2026. See the full list of SBA 7(a) rules as of October 2026.

What are the steps from first call to closing?

1. Talk to an SBA lender before you make offers. Confirm your equity, credit, citizenship and the experience the lender wants to see. Ask how it treats seller notes and investors.
2. Sign a letter of intent. Make it contingent on SBA financing. Exclusivity typically runs 30 to 90 days.
3. Submit the package. Lenders typically ask for the seller's tax returns and financial statements, your personal financial statement and resume, and proof of your injection funds. Funds must sit in your account about 30 days or be documented as to source. Smaller loans get a repayment analysis that includes two months of bank statements.
4. Diligence. Typically 30 to 60 days. The lender orders an independent business valuation on every change-of-ownership loan. At a purchase price of $3 million or more, it also commissions a quality of earnings report.
5. Underwriting. The lender tests debt service coverage at 1.25x for a first acquisition, on historical cash flow only. Total debt cannot exceed the appraised value.
6. SBA loan number. The lender submits the loan to the SBA. The date the number is issued decides which SOP applies.
7. Closing documents. Purchase agreement, loan documents, guarantees, any standby agreement with the seller, and the lease assignment.
8. Close and fund. SBA deals typically close 60 to 120 days after the LOI is signed.

What does the loan cost? A worked example

Assume a $1,200,000 price, $50,000 of working capital and $30,000 of fees and closing costs (illustrative).

1. Total project costs: $1,200,000 + $50,000 + $30,000 = $1,280,000.
2. Minimum injection: 10% x $1,280,000 = $128,000.
3. SBA loan: $1,280,000 - $128,000 = $1,152,000.
4. Monthly payment at 10% over 10 years: about $15,224. Annual: about $182,700.
5. Historical cash flow needed at 1.25x: $182,700 x 1.25 = about $228,400.
6. If prime rose one point, the maximum rate would be 11%. At 11% from day one, the payment would be about $15,869 a month, or about $7,700 more a year.
7. Guarantee fee: the loan is over $700,000, so 3.5% of the guaranteed portion. Your lender will give the dollar amount.

The rate is variable. Build your cash-flow model at a higher rate than today's and see whether coverage still holds.

If you are buying your first business

Your loan is an Initial Acquisition: 1.25x coverage, a 10% injection the lender cannot reduce, and no seller earnouts. The seller can stay as a consultant or employee for up to 24 months in aggregate. Use that time to transfer customers, suppliers and staff relationships.

If you already own a business

Buying a second business can be a Business Expansion: 1.15x coverage, and the lender may reduce or waive the injection with strong liquidity and positive net worth. There is no reduction in full personal guarantors. Lenders typically look for the same or a related industry and two full fiscal years under current ownership.

Where these numbers come from: SBA rules are from SBA SOP 50 10 8.1 as summarized by Beancount and Cantrell Law, the SBA 7(a) program page, and Starfield & Smith for partial changes of ownership. Rates and fees are from NerdWallet; check current prime. Timelines are from BizBuySell and BigIdeasDB. Confirm current terms with an SBA lender. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling, and the summaries above are secondary sources.

Related questions

Does the SBA lend the money directly?

No. A bank or other lender makes and funds a 7(a) loan. The SBA guarantees part of it, and the borrower pays the guarantee fee.

Is the interest rate fixed?

The cap cited here is for variable rates. As of September 2026, the maximum variable rate for loans over $350,000 was prime plus 3%, or 10%. Ask your lender whether it offers a fixed rate, and check current prime.

How long does an SBA acquisition loan take?

Typically 60 to 120 days from signed LOI to closing, with 30 to 60 days of diligence inside that. See How long does an SBA acquisition loan take to close?

What comes next

The first number a lender asks about is your 10%, and whether the seller can carry part of it: Can a seller note count toward the SBA 10% down payment?

Related articles

• What are the SBA 7(a) rules for buying a business, as of October 2026?
• How much will a bank lend to buy a business?
• Can I avoid the personal guarantee on an SBA loan?
• SBA loan or seller financing: which is better?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.