Most small-business acquisitions ($500K–$5M) are financed with some combination of SBA 7(a) debt, seller financing, and buyer equity. The structure most lenders want to see is roughly: 10% buyer equity, 10–20% seller financing (often on standby), and 70–80% SBA debt. Getting the equity stack right and presenting clean diligence is what separates approved deals from declined ones.
Why 7(a) dominates small-business acquisitions
SBA 7(a) allows up to $5M in financing, 10-year amortization on the business-only portion (longer with real estate), and the personal guarantee structure works for individual buyers. Conventional bank acquisition financing typically requires more buyer equity (25%+), shorter terms, and stronger borrower balance sheets — most individual buyers don't qualify.
The equity stack
SBA generally requires the buyer to inject at least 10% equity. Up to half of that (5%) can come from seller financing if the seller's portion is on full standby for at least 24 months — meaning no payments to the seller for 24 months. Pure seller financing without buyer cash usually doesn't satisfy the equity requirement.
Quality of earnings is real diligence
Lenders want to see normalized EBITDA, not the seller's pitch deck. Common adjustments: removing one-time owner perks, normalizing owner compensation to market, removing non-recurring items, and verifying that revenue is sustainable post-transition. A quality-of-earnings (QoE) report from a small-business CPA or transaction-advisory firm typically pays for itself by either confirming the price or surfacing real adjustments.
Personal guarantees and collateral
Owners of 20%+ sign unlimited personal guarantees. The SBA also expects available collateral to be pledged, including personal real estate up to a defined coverage ratio. "Available collateral" is interpreted by the lender, but the bar is that the loan should be "fully collateralized" where reasonably possible.
Common mistakes that kill deals
Buying a business whose financials don't reconcile with tax returns. Underestimating working-capital needs at close (the line of credit is often a separate facility, not part of the acquisition loan). Overpaying for goodwill and then being unable to service debt. Not budgeting for transition disruption — most acquisitions see 10–25% revenue dip in the first year as the buyer learns the business.
Sources
Editorial note: This article is general information about how small-business lending products work. It is not financial, legal, or tax advice for any specific borrower. Loan terms, eligibility, and rates vary by lender, borrower profile, and current market conditions, and the specific facts of your business will determine which products and structures actually fit. Consult a CPA, attorney, or SBA-approved lender before making decisions that affect your business.