Contents:
- The Problem
- Why Solve It This Way
- Step-by-Step Solution
- Step 1: Start With an SBA 7(a) Loan
- Step 2: Get Three Years of the Seller’s Financials
- Step 3: Prepare a 10-20% Down Payment
- Step 4: Get an Independent Business Valuation
- Step 5: Submit Your Personal Financial Package
- An Anecdote
- A Sustainability Angle
- Troubleshooting
- Can I use a seller note to reduce my down payment?
- Quick Answer Box
- Conclusion
Most people assume buying an existing business is harder to finance than starting one fresh. It’s actually the opposite; lenders love businesses with a proven track record, and understanding that changes how you should approach the whole process.
The Problem
You’ve found a profitable business to buy, but the seller wants payment upfront and you don’t have $400,000 sitting in a savings account.
Why Solve It This Way
Acquisition loans exist specifically because lenders can underwrite against real historical revenue, not projections, which makes approval far more achievable than most first-time buyers expect.
Step-by-Step Solution
Step 1: Start With an SBA 7(a) Loan
The SBA 7(a) program is the most common financing route for buying an existing business, covering up to 90% of the purchase price with terms up to 10 years for goodwill and business assets, or 25 years if real estate is included.
Step 2: Get Three Years of the Seller’s Financials
Lenders require tax returns, profit and loss statements, and balance sheets for the target business, typically the past three years, before they’ll even begin underwriting.
Step 3: Prepare a 10-20% Down Payment
Most SBA-backed acquisition loans require the buyer to put down 10-20% of the purchase price personally, with the seller sometimes financing a portion of that as a seller note.
Step 4: Get an Independent Business Valuation
Lenders typically require a third-party valuation to confirm the purchase price is reasonable relative to the business’s actual earnings, protecting both the buyer and the lender from overpaying.
Step 5: Submit Your Personal Financial Package
Even though you’re buying an existing business, lenders still review your personal credit score, net worth, and relevant industry experience before approving the loan.
An Anecdote
A buyer purchasing a $600,000 landscaping company put down $90,000, financed $60,000 through a seller note, and secured the remaining $450,000 through an SBA 7(a) loan at a 10-year term. The existing customer contracts made underwriting faster than a comparable startup loan would have been.
A Sustainability Angle
Some lenders now offer slightly better terms for acquisitions of businesses with documented energy-efficient equipment or green certifications, treating lower future operating costs as a modest underwriting advantage.
Troubleshooting
If your loan application stalls, the issue is usually incomplete seller financials, not your own qualifications. Push the seller for clean, complete records before resubmitting, since gaps here delay far more deals than buyer creditworthiness does.
Can I use a seller note to reduce my down payment?
Yes, many SBA-backed deals allow a seller note to cover part of the required equity injection, sometimes reducing your out-of-pocket cash by several percentage points.
Quick Answer Box
To finance an existing business purchase: gather three years of seller financials, get an independent valuation, prepare a 10-20% down payment, and apply through an SBA 7(a) lender or a bank’s commercial acquisition program.
Conclusion
Financing the purchase of an existing business is genuinely more accessible than most first-time buyers assume, provided the seller’s books are clean and you’re willing to put real skin in the game through a meaningful down payment. Start conversations with two or three lenders early, since underwriting standards and turnaround times vary more between banks than most buyers expect going in.
