How to Finance a Business Purchase: SBA Loans and Seller Notes

Most small business purchases are paid for with three layers: your own cash (at least 10% of the price under US SBA rules), a bank loan, and often a seller note where the owner is paid part of the price over several years. In the US the SBA 7(a) program lends up to $5 million, with acquisition loans repaid over at most 10 years and rates capped at Prime plus 3% on larger variable loans. Every 20% owner signs an unlimited personal guarantee.

You do not need to be rich to buy a business. You do need some cash, a clean credit record and a business whose profit can carry the loan with room to spare. That last part decides everything: lenders lend against the business's cash flow, and if the numbers work they will finance most of the price.

The rules below are the ones in force on October 26, 2026. They changed twice this year in the US, so check the date on anything else you read.

How do people pay for a business they cannot afford outright?

They stack money from different places. A typical US deal looks like this:

The share of seller money has been small lately. In the IBBA and M&A Source survey for the second quarter of 2026, advisers said sellers received 83% to 92% cash at close on average, and seller financing accounted for less than 10% of most deals. SBA loans are the main route: in BizBuySell's third-quarter 2026 survey, 78% of buyers said they expect to use SBA financing.

How does an SBA 7(a) loan work for buying a business?

The SBA does not lend the money. A bank or other approved lender does, and the SBA guarantees part of the loan, which is why lenders will finance a purchase where the main security is the business itself. The headline rules:

The Prime rate was 7.00% on October 22, 2026, after the Federal Reserve raised its target range to 3.75% to 4.00% on September 17. So the most a lender can charge on a variable 7(a) loan above $350,000 is 10% today. Smaller loans have higher caps: Prime plus 6% between $50,001 and $250,000, for example.

There is an upfront guarantee fee on top. For loans approved in the year to September 30, 2027, it is 2% of the guaranteed portion up to $150,000, 3% between $150,001 and $700,000, and 3.5% (3.75% on the guaranteed part above $1 million) for larger loans. The same notice waives it on loans of $700,000 or less to manufacturers, food supply chain businesses and rural businesses. On a $600,000 loan with a 75% guarantee, the fee is 3% of $450,000, or $13,500.

What changed in 2026

• SOP 50 10 8.1 took over on October 1, 2026. It sorts deals into initial acquisitions, business expansions, owner buyouts and employee ownership deals, and sets a 1.25x debt coverage minimum for a first acquisition (1.15x applies to most other 7(a) loans).
• Only US citizens and nationals qualify. Since March 1, 2026, every owner and guarantor must be a US citizen or national with their principal residence in the US. Green card holders were eligible under the 2025 rules and no longer are. The SBA described it as making any business owned in whole or in part by a foreign national ineligible.
• A quality of earnings report is required on purchases of $3 million or more. Below that, the lender still needs a business valuation, and above a $350,000 price it must come from a qualified independent appraiser.

What the SBA will not do

• Earn-outs are banned. SOP 50 10 8.1 says "Seller earnouts are prohibited." Rebates to the buyer based on performance are allowed, and must go toward the loan.
• The seller cannot stay as an owner or employee in a first acquisition. They can consult for up to 24 months.
• The price cannot outrun the valuation. If you pay more than the appraised value, the SOP says the difference must be made up by equity, which means more of your cash.

How does a seller note work?

A seller note is a loan from the seller to you for part of the price. You pay it back with interest from the business's cash, usually over five to seven years. BizBuySell's guide gives 5 to 7 years at 8% to 10% interest as typical terms, though that article is from 2018 and current terms are whatever you negotiate.

Sellers who carry a note have a reason to help the handover succeed, because they only get paid if the business keeps earning. That is worth more than the money.

With an SBA loan, the note has two possible roles:

1. As part of your 10% equity. A seller note can count toward the equity injection only if it is on full standby (no principal or interest paid) for the whole life of the SBA loan, and it can cover at most half of the required injection. On a 10% injection that is 5% of the price. The seller waits up to 10 years for a cent, so many will not agree.
2. As ordinary debt. A note that is being paid does not count as your equity. It still counts toward total debt, and SOP 50 10 8.1 limits total debt to the business valuation. The bank will include its payments when it checks debt coverage.

Outside the SBA, seller financing can be a larger share. Some smaller deals, especially online businesses, close with no bank at all: a down payment and a seller note.

What is an earn-out, and when does it help?

An earn-out is part of the price paid later only if the business hits targets after the sale. BDO describes them as often linked to a post-deal EBITDA target, with a typical earnout period of 1 to 3 years. They help when you and the seller disagree on what the business will earn: you pay the higher price only if the higher profit turns up.

They also cause fights, because the seller no longer controls the results that set their payment. In the US they cannot sit alongside an SBA loan, so they appear mostly in conventionally financed or investor-backed deals.

Can investors put money into the deal?

Yes, within limits if there is an SBA loan. SOP 50 10 8.1 lets a minority investor hold less than 20% with no control over the business, and money from such investors counts toward at most half of your required injection. Bigger investor groups usually mean a different route: a search fund or an independent sponsor deal, where investors fund the search and the purchase in return for most of the equity.

Family money is common at the small end. Write down whether it is a gift, a loan or a share of the business, because the lender will ask and so will your family later.

How does it work outside the US?

Government-backed lending exists elsewhere, but none of these schemes matches the SBA's 10-year acquisition loan with 10% down. Expect larger down payments, shorter terms and a bank that wants security.

United Kingdom. The British Business Bank's Growth Guarantee Scheme supports facilities generally up to £2 million, with a 70% government guarantee to the lender, terms up to six years (being extended to 10 years after a July 2026 announcement) and the borrower "100% liable". Its official pages describe use for "any legitimate business purpose" without naming acquisitions, so whether a lender will use it for a purchase is the lender's call. Lenders can take personal guarantees for facilities of all sizes, though not over your main home. The scheme is due to run to March 31, 2030.

Singapore. Enterprise Singapore's EFS Mergers and Acquisitions loan finances buying local or overseas businesses, with a 50% government risk share (70% for young enterprises), repayment over up to five years, and a S$50 million cap across all EFS loans. The borrower needs at least 30% local equity. Domestic acquisitions became permanently eligible from April 1, 2026.

Malaysia. We found no government scheme aimed at buying a business. SJPP's Government Guarantee Scheme MADANI 2026 guarantees up to 80% of new financing for working capital and capital expenditure, for companies at least 51% Malaysian-owned, and is open until June 30, 2027. Acquisition financing in Malaysia is usually a negotiated bank term loan secured on property, plus a seller instalment arrangement.

How do you know if the deal can carry the debt?

Lenders use debt service coverage: cash flow available for debt divided by a year of loan payments. SBA wants 1.25x on a first acquisition, measured on historical earnings after the deal. Projections cannot be used to pass that test.

Here is a hypothetical deal, run through the business acquisition calculator:

• The business: $250,000 of verified SDE, bought at 3 times, so $750,000.
• Your cash: 10%, or $75,000.
• Seller note: 10%, or $75,000, at 6% over five years, paid monthly (so it does not count toward your equity).
• SBA loan: $600,000 at 10% over 10 years.
• Running it: an $80,000 market salary for whoever manages it, and $10,000 a year of reinvestment.

That deal passes the lender's test. It also shows how thin the margin is: a 20% fall in earnings wipes out the surplus, and with a personal guarantee the shortfall is yours. Lenders measure coverage on EBITDA, which is close to but not always the same as SDE minus a salary, so your lender's figure may differ. The guarantee fee and closing costs would add to the cash you need.

Where do you get an SBA acquisition loan?

Go to lenders that do many acquisition loans, because they know the paperwork and the SOP. SBA's Lender Match sends your request to participating lenders. Bring three years of the business's tax returns, the purchase agreement or letter of intent, your personal financial statement and résumé, and a short plan for the first year. Lenders want to see that you can run this kind of business, even if you have never owned one.

Mistakes that sink deals at the financing stage

• Counting on seller money the SBA will not treat as equity. Unless the note is on full standby, your 10% must be cash.
• Agreeing a price above the appraisal. You fund the gap with more cash, or renegotiate.
• Using money you cannot lose for the down payment. The guarantee means a failed business can take savings beyond the down payment. The risks guide covers this.
• Ignoring working capital. The loan buys the business. You still need cash to run it until customers pay.
• Assuming the old rules. Citizenship, debt coverage and seller note rules all changed between June 2025 and October 2026.

The rest of the series starts at how to do private equity. Before you go to a lender, work through the due diligence checklist so the numbers you bring are numbers you have checked.

This is general information, not financial, legal or tax advice. SBA rules, rates and fees change; confirm the current terms with an SBA lender and have an attorney and accountant review any loan or purchase agreement before you sign.