Guides
SBA loan to buy a business: the 7(a) requirements in force since October 2026
To buy a business with an SBA 7(a) loan you need equity of at least 10% of the total project cost, a business whose last full year of earnings (or the average of the last two) covers all of its new debt 1.25 times, an unlimited personal guarantee from every owner of 20% or more, and owners who are all U.S. citizens or U.S. nationals living in the United States. A seller note can supply up to half of that 10%, and only if the seller takes no payments for the life of the loan. The loan tops out at $5 million, with a 10-year amortization unless real estate is in the deal. At the late-October 2026 prime rate of 7.00%, the variable rate on a loan over $350,000 can be no higher than 10.00%. These are the rules of SBA SOP 50 10 8.1 for applications SBA receives on or after October 1, 2026 (Information Notice 5000-882227).
What the business is worth, and how the lender’s appraisal and coverage test cap the price, is covered in how to value a small business. This page covers whether you qualify and how the deal is structured.
SBA 7(a) loan requirements for buying a business
SBA lists the base tests on its 7(a) page: an operating, for-profit business in the U.S., small under SBA size standards, not an ineligible type, creditworthy, and unable to get the credit on reasonable terms elsewhere. For a purchase, the SOP adds these.
- The business borrows. “A 7(a) loan cannot be made solely to an individual.” The business is the borrower or a co-borrower. If you buy the shares personally, you and the company sign the note jointly.
- Every owner is a U.S. citizen or national. Since March 1, 2026, 100% of direct and indirect owners and every required guarantor must be U.S. citizens or U.S. nationals whose principal residence is in the United States (Procedural Notice 5000-876626). Green card holders are listed as “Ineligible Persons” in Appendix 3. An ineligible owner must divest completely before the SBA loan number is issued, and the test looks back six months.
- Credit elsewhere. The lender must certify you cannot get the money on reasonable terms without the guaranty, including from the liquid assets of owners of 20% or more. Owners may keep reasonable funds for retirement, education and medical costs.
- No federal losses or delinquencies. A federal nontax debt 90 days past due disqualifies you, and so does a past default that cost the government money. Since June 1, 2026, SBA can waive a prior SBA-loan loss case by case for an owner who held under 20% of the defaulted business and neither guaranteed nor controlled it (Policy Notice 5000-879464).
- Filed tax returns. “If an Applicant has not filed required Federal tax returns, the Applicant is not eligible.” The seller’s figures are checked against the seller’s IRS transcripts.
- Franchises on the Directory. A franchised brand must be on the SBA Franchise Directory.
- Experience. The credit memo must describe your “industry experience and management team” and who runs the business day to day.
- The seller leaves. In a full purchase the seller cannot stay as an officer, director, owner or employee. The business may hire the seller as a consultant for up to 24 months in total.
The SOP sets no minimum credit score for a Standard 7(a) loan. The lender reads every owner’s and guarantor’s credit report against its own policy.
Initial acquisition, business expansion or owner buyout
The lender must classify the deal, and the category sets three rules. Initial acquisition is the default. To use another category the lender has to document why it fits.
| Deal type | Who it covers | Minimum coverage (DSC) | Minimum equity | QoE at $3M+ |
|---|---|---|---|---|
| Initial acquisition | A new majority or largest owner who was not already an owner, or who has worked in the business under 24 months, buying 100% | 1.25:1 | 10% of total project cost; “cannot be reduced or eliminated” | Required |
| Business expansion | A business operating at least two full fiscal years under its current owners, buying 100% of another business in the same four-digit NAICS industry group | 1.15:1 | 10%; the lender may reduce or waive it | Required |
| Owner buyout (existing or partial) | Existing owners, employees of 24 months or more, or a new minority owner buying all or part of other owners’ stakes | 1.25:1 | 10% of the purchase price; the lender may reduce or waive it | Not required |
Coverage is EBITDA divided by all debt service after the purchase, on the last fiscal year or the average of the last two, and projections cannot be used except for some special-purpose real estate. A quality of earnings (QoE) report is an independent check of the seller’s earnings that reconciles bank deposits to the books and tax returns. Both are worked through on the valuation guide.
SBA equity injection and how seller notes count
The 10% is figured on total project cost: “all costs required to become operational, regardless of the source of funds,” except lines of credit and 504 loans. Working capital, closing costs and a financed guaranty fee are all in the base.
Sources the SOP accepts without limit:
- Cash that is not borrowed, including a gift.
- A personal loan to a guarantor, if it is repaid from something other than the business. Your salary from the business does not count.
- Grants with no repayment or clawback during the loan.
- Verified prepaid expenses, including what you paid for the valuation or QoE. Fees for education, advisers or a loan agent do not count.
Sources limited to half of the required equity, alone or together:
- A seller note, or other debt, on full standby. That means “no payments of principal or interest for the term of the 7(a) loan.” Interest may accrue, to be paid after the SBA loan is gone. The note is subordinated to the lender under SBA Form 155 or the lender’s equivalent.
- A non-controlling investor with under 20% and no control, who cannot be repaid or take distributions to recover the investment before the guaranty is released.
Three more seller-note rules decide most structures:
- Price above the appraisal. “If the amount paid for the business exceeds the business valuation, the difference must be made up by equity.” In that case the SOP lets extra limited equity, such as a further seller note, cover the gap beyond the half limit, if it is on full standby.
- A seller note that is paid. A note not on standby is not equity. Its payments go into the coverage test, an interest-only note is tested as if amortized over no more than 10 years, and total debt, this note included, “is limited to the business valuation amount.”
- No earnouts. “Seller earnouts are prohibited.” Buyer rebates based on the business’s performance are allowed, and any rebate must go to pay down the 7(a) loan. A working-capital true-up is not a rebate.
Personal guarantee on an SBA loan
Every individual who owns 20% or more, directly or through entities, must give an unlimited full guarantee (SBA Form 148 or the lender’s form). Entities and trusts that own 20% or more guarantee too, and so does the trustor of a guaranteeing trust. If no one owns 20%, at least one owner must guarantee in full. For a change of ownership, the percentages are counted after the sale.
- Spouses. When spouses and minor children together own 20% or more, each spouse who owns less than 20% guarantees in full. A spouse who owns nothing signs the collateral documents, such as the mortgage on a jointly owned home, and any guarantee from that spouse is limited to their interest in that collateral.
- Others. The lender may also require a guarantee from a minority owner or a key manager the business depends on.
- Financial statement. Each guarantor signs a personal financial statement (SBA Form 413 or equivalent) dated within 90 days of approval.
- No quick exit. Cutting below 20% within six months before applying does not end the duty, unless the owner leaves the business entirely.
SBA loan collateral and the lien on your home
SBA calls a loan “fully secured” when the lender holds liens on all available fixed assets, valued at these discounts, up to the loan amount (Appendix 15, C.3):
| Asset | Counts at |
|---|---|
| Used machinery and equipment | 50% of net book value, or 80% with an orderly liquidation appraisal, less prior liens |
| Improved real estate | 85% of market value (unimproved land 50%) |
| Furniture and fixtures | 10% of net book value or appraised value |
| Accounts receivable and inventory | 10% of book value; the lien is mandatory |
Every asset in the sale is pledged, including transferable licenses such as a liquor license, and vehicles worth over $20,000 that carry no other lien.
Goodwill is not on the list, so most service-business purchases fall short. On a shortfall the lender “must take available equity” in personal real estate (your home, rentals, other commercial property) owned solely by a co-borrower, an owner of 20% or more or a guarantor (supplemental guarantors excepted). The lien can be limited to the shortfall and to 150% of the equity, and is not required when equity is under 25% of market value. Property moved to a non-owning spouse or minor children within six months of applying still counts. The credit memo must also say whose life is insured, or why no one’s is.
Partial change of ownership: buying into a business
A partial change of ownership is a 7(a) loan to buy all or part of one or more owners’ stakes while at least one original owner stays and guarantees the loan.
- Outsiders are capped below 50%. Under SOP 50 10 8.1, anyone who has worked in the business for under 24 months may buy less than 50% and may not become the largest owner, counting holdings through entities and trusts. A bigger purchase is underwritten as an initial acquisition (1.25 coverage, 10% equity that cannot be waived, a QoE at $3 million), though the seller may still stay on as an owner.
- Every new owner co-borrows. The operating company and each new direct or indirect owner sign as co-borrowers, whatever the stake. The SOP’s example is a new owner gaining 1%.
- A seller who keeps under 20% still guarantees. A selling owner left with under 20% guarantees the full loan for at least two years after final disbursement, and is released only after 12 straight months of current payments. That guarantor is not required to pledge a home on a collateral shortfall.
- Remaining owners of 20% or more guarantee under the normal rule. The seller may stay as an owner, officer or employee.
- No new holding company. “Multi-step partial changes of ownership are not eligible”: existing owners and the new owner cannot form a new entity to buy 100% of the company.
- Equity can be waived. The minimum is 10% of the purchase price. The lender may cut or waive it if the business has enough liquidity and working capital and no negative net worth at its last fiscal year-end. If it does, no permanent working capital can go into a 7(a) term loan for 90 days.
In an existing-owner buyout, where the remaining owners or employees end up with 100%, they must have worked in the business for the last 24 consecutive months.
SBA 7(a) loan rates, guaranty fee and maximum loan in 2026
| Term | Rule as of November 2026 | Source |
|---|---|---|
| Maximum loan | $5,000,000 (Standard 7(a)); SBA’s guaranty is capped at $3,750,000 per business | SOP 50 10 8.1, Section B; Appendix 16 |
| Guaranty share | 75% on loans over $150,000; 85% at $150,000 or less | Appendix 16 |
| Variable rate cap, loans over $350,000 | Prime + 3.00%: 10.00% at prime of 7.00% | Appendix 18; Federal Reserve H.15 (7.00% through October 29, 2026) |
| Variable rate cap, $250,001 to $350,000 | Prime + 4.50%: 11.50% | Appendix 18 |
| Fixed rate cap, loans over $250,000 | Prime + 5.00%: 12.00% | 87 FR 46883 (2022, still the current notice) |
| Upfront guaranty fee, loans of $700,001 to $5M | 3.5% of the guaranteed portion up to $1M, plus 3.75% of the guaranteed portion above $1M | Information Notice 5000-881797, loans approved October 1, 2026 to September 30, 2027 |
| Upfront guaranty fee, smaller loans | 3% of the guaranteed portion for $150,001 to $700,000; 2% at $150,000 or less; 0% up to $700,000 for manufacturers, listed food-supply-chain industries and rural businesses | Same notice |
| Amortization | Up to 10 years for a change of ownership; a real estate share can run to 25 years on a blended term | Appendix 15, B |
The variable rate is set from prime on the first business day of the month the loan gets its SBA number. Since March 1, 2026, lenders may also price off SOFR or the 5- or 10-year Treasury, still capped at prime plus the same spread (91 FR 5805). The lender also pays SBA an annual service fee of 0.55% of the guaranteed balance, and the notice forbids passing it to you.
What SBA acquisition loans looked like in fiscal 2026
From SBA’s loan-level file as of September 30, 2026, counting loans the lender coded “Change of Ownership” and leaving out cancelled loans and revolving lines (SBA 7(a) FOIA data):
| Fiscal year (Oct to Sept) | Loans | Median loan | Middle half | Over $1M | Median variable rate |
|---|---|---|---|---|---|
| 2025 | 5,903 | $868,000 | $430,350 to $1,832,900 | 42.7% | Prime + 2.00 |
| 2026 | 5,733 | $968,000 | $457,000 to $1,990,000 | 48.4% | Prime + 2.00 |
The median term was 120 months and 87% to 88% of loans were variable-rate, priced a full point under the cap at the median. Fiscal 2026 loans were approved under SOP 50 10 8, not 8.1, and 1,573 had not disbursed, so the count can still drop. Industries, lenders, states and charge-off rates by loan size are on SBA 7(a) acquisition loan data.
How long an SBA loan to buy a business takes
SBA publishes a target only for its own review: 5 to 10 business days for a Standard 7(a) loan (SBA). Underwriting, the appraisal and closing take the rest. The SOP fixes the order and how long documents stay valid.
- Letter of intent and term sheet. The lender sets the deal type, the equity and the structure of any seller note.
- Valuation and QoE. Above a $350,000 business purchase price (real estate excluded), the lender orders a valuation from an accredited appraiser; it cannot use one prepared for you or the seller. At $3 million or more it adds a QoE, and one you already bought can be used with a reliance letter or a second firm’s review. You may be charged for both, and that money counts toward equity.
- Application. You sign SBA Form 1919 and personal financial statements, and the lender files IRS Form 8821 or uses IVES to pull tax transcripts. You and your tax preparer cannot file the 8821 yourselves.
- Approval. A Preferred Lender (PLP) approves under its own authority; the valuation and QoE must be engaged when the SBA loan number is issued and done before closing. Other lenders send the full package, valuation and QoE included, to SBA’s processing center.
- Shelf life. Personal financial statements must be dated within 90 days of approval, business and seller statements within 120 days of submission. A slow deal means fresh paperwork.
- Before the money moves. The lender must reconcile the tax transcripts before the first disbursement, and its file must show a site visit to the business. Guarantees, liens and the standby agreement are signed at closing.
If SBA declines a non-delegated application, the lender can ask for reconsideration within six months.
SBA loan document checklist for a business purchase
From you, as buyer and guarantor:
- SBA Form 1919, one per co-borrower
- SBA Form 413 or the lender’s personal financial statement for each owner of 20% or more and each guarantor, dated within 90 days
- Authorization for the lender to pull tax transcripts (IRS Form 8821 or IVES); the lender also pulls your credit report
- A résumé or written history of your industry and management experience, which the credit memo has to describe
- Proof of the equity: bank statements, a gift letter, paid invoices for prepaid costs
- The signed purchase agreement with every schedule and amendment
- The lease, or the real estate contract, appraisal and environmental questionnaire if property is included
- The franchise agreement, if there is one
- SBA Form 159, signed by you, the lender and any loan agent or packager in the deal
From the seller, through you:
- Financial statements for the last three fiscal years, signed or certified within 120 days of submission
- Interim statements no older than 120 days, and the same period a year earlier
- The tax returns the lender will match to IRS transcripts
- A list of the assets being sold
The lender orders the valuation and any QoE and prepares the pro forma balance sheet, the credit memo, the SBA Form 155 standby agreement and the SBA Form 148 guarantees.
Worked example: a $1.2 million business purchase with an SBA loan
The deal is hypothetical. Your new company buys the assets of a services business for $1,200,000, no real estate. You will own 100% of it. The lender’s valuation supports the price, and after paying you a $110,000 salary the lender counts $290,000 of EBITDA. The method for getting from the seller’s books to that figure is in the valuation guide.
Step 1: project cost, equity and the loan.
| Uses | Sources | ||
|---|---|---|---|
| Purchase price | $1,200,000 | Your cash | $65,810 |
| Working capital | $60,000 | Seller note, full standby | $65,800 |
| Valuation, legal and closing costs | $25,000 | SBA 7(a) loan | $1,184,483 |
| SBA upfront guaranty fee | $31,093 | ||
| Total project cost | $1,316,093 | Total | $1,316,093 |
The loan is 90% of the project. The fee is 3.5% of the 75% guaranteed portion ($888,363), because that portion is under $1 million. Equity is $131,610. The seller note is $65,800, just under half, and it gets nothing for ten years. On a strict reading of the rule that total debt cannot pass the $1.2 million valuation, a paid seller note on top could be no more than about $15,500.
Step 2: coverage. At prime + 2.00 (9.00%, the median spread in the table above) over 120 months, the payment is $15,005 a month, or $180,054 a year. Coverage is $290,000 ÷ $180,054 = 1.61. At the 10.00% cap it is $187,836 a year and 1.54. Both pass 1.25. The lender must also show a global cash flow, including your other obligations, of at least 1:1.
Step 3: collateral. Used equipment with a book value of $180,000 counts at $90,000. Receivables and inventory of $150,000 count at $15,000, and $20,000 of furniture at $2,000. That is $107,000 against a $1,184,483 loan. Your home is worth $600,000 with a $350,000 mortgage, so its $250,000 of equity is 42% of its value, over the 25% line. The lender must take a lien on it, and may cap the lien at 150% of the equity ($375,000).
Step 4: guarantee. You own 100%, so you guarantee the whole loan without limit. A spouse who owns none of the company signs the mortgage on a jointly owned home, and owes nothing beyond their share of it.
Running the market side of an acquisition
The SOP decides how a deal is financed, not whether the market will keep paying. Hyperresearch can research that side as a cited report: the local market and competitors, closed-deal multiples and the industry’s SBA loan and charge-off record, with every citation checked against its source. See the HVAC acquisition sample. It reads public sources only, so the seller’s books, the QoE and the appraisal still come from the seller, your CPA and the lender. For the questions to ask before you sign, see commercial due diligence for a small acquisition; for multiples by industry, the valuation multiples page.