Most business acquisitions are financed — not paid in cash. This guide covers the two primary loan paths: SBA 7(a) loans and conventional bank financing. IBB helps you understand which option fits your deal and connects you with the right lenders.
SBA loans are issued by private banks but guaranteed by the U.S. Small Business Administration — meaning the government covers up to 85% of the loan if the borrower defaults. This guarantee allows lenders to offer more favorable terms than they could on conventional loans.
For business acquisitions, the SBA 7(a) loan is the dominant product. It can be used to purchase an existing business, buy out a partner, acquire real estate, or fund working capital for a new owner.
The result for buyers: lower down payments, longer terms, and competitive interest rates compared to conventional business loans — making it possible to acquire businesses that would otherwise require significantly more cash upfront.
For business acquisitions, the 7(a) is almost always the right choice. Here's how the two main SBA programs compare.
The most flexible SBA loan program — works for acquisitions, working capital, equipment, and real estate.
Fixed-rate financing for commercial real estate and major equipment. Not ideal for straight business acquisitions.
Lenders evaluate both the buyer and the target business. Here's what they look for on both sides of the transaction.
SBA financing runs in parallel with your deal negotiation. Getting pre-qualified early is critical to avoid delays at close.
Before making offers, get a pre-qualification from an SBA-preferred lender. Requires personal financial statement, tax returns, and credit authorization.
Once a seller accepts your Letter of Intent, formally apply to your SBA lender. Submit deal documents: purchase agreement draft, CIM, financials.
The bank underwrites both the buyer and the business. They verify financials, confirm DSCR, order a business valuation (required by SBA), and assess collateral.
Once the bank approves, the loan goes to SBA for final authorization. This is the final approval step before commitment letters are issued.
Funds are disbursed through escrow at close. Seller receives purchase price, buyer takes ownership. SBA loan enters repayment immediately.
SBA loans aren't the only path to acquiring a business. Conventional bank loans — and a few other options — can close faster, with fewer requirements, for the right deal.
A conventional business acquisition loan is issued directly by a bank or credit union without a government guarantee. Because the lender takes the full credit risk, they require stronger deals — but in return, they move faster and with less bureaucracy than the SBA process.
Conventional loans are not always available to first-time buyers or deals with thin cash flow. But for an established buyer with a solid deal and a banking relationship, they're often the cleaner, faster route to closing.
IBB evaluates financing options alongside deal structure — not after. Knowing which path fits your deal before you make an offer prevents last-minute financing problems at closing.
| Factor | SBA 7(a) | Conventional Bank Loan |
|---|---|---|
| Loan Amount | Up to $5M | No government cap — lender discretion |
| Down Payment | 10–20% minimum | 20–30% typically required |
| Interest Rate | Prime + 2.75% (variable) | Slightly lower — negotiated with lender |
| Loan Term | Up to 10 years (25 with RE) | 5–7 years typical |
| Time to Close | 60–90 days | 30–45 days |
| Government Guarantee | Up to 85% — reduces lender risk | None — lender takes full risk |
| Underwriting Standards | More flexible — designed for smaller deals | Stricter — stronger deal required |
| Guarantee Fee | 0.5–3.5% of guaranteed portion | None |
| DSCR Requirement | 1.25x minimum | 1.25x–1.5x — lender dependent |
| Best For | First-time buyers, thinner deals, lower down payment | Experienced buyers, clean deals, faster timeline |
The USDA's commercial equivalent to the SBA — a government-guaranteed loan program for businesses in areas with a population under 50,000. Loan amounts up to $25M, guarantees up to 80%, and can be used for business acquisitions. Often overlooked for deals in South Bay and suburban San Diego markets that qualify geographically. Ask IBB if a target business is in an eligible area.
Straight answers to the questions buyers ask most often about SBA loans.
IBB works with both SBA and conventional lenders in San Diego. We help you understand which path fits your deal, get pre-qualified, and structure your offer to meet lender requirements from day one.