How to Get a Loan to Buy a Business (Step by Step)

Step 1 — Know What Lenders Look At Before You Approach Anyone

Business acquisition lenders underwrite two things: the borrower and the deal. Get both in order before you apply.

**The borrower — what they check:** - Personal credit score: 680+ FICO is typical minimum for SBA; 700+ for conventional - Personal financial statement: total assets, liabilities, net worth - 3 years of personal tax returns: they're looking for income consistency and undisclosed liabilities - Relevant business experience: not necessarily in the same industry, but experience managing operations, people, and finances - Post-close liquidity: you need reserves after the down payment

**The deal — what they check:** - Business cash flow (SDE or EBITDA): must support 1.25x debt service coverage - Purchase price vs. appraised value: they'll order their own appraisal - Seller note structure: is there a seller carry, and on what terms? - Business age, industry, and customer concentration - Lease terms and assignability

Step 2 — Choose the Right Loan Type for Your Deal

Not every loan type works for every deal. Pick the right structure first.

**SBA 7(a) — best for most first-time buyers.** Up to $5M, 10% down, 10-year term. Ideal for service businesses with strong cash flow and limited hard assets. Requires personal guarantee, SBA fees, and a business that generates documented earnings.

**SBA 504 — best when real estate is included.** Combines a conventional bank first lien with an SBA-backed CDC (Certified Development Company) second. Useful when the acquisition includes the building the business operates in.

**Conventional bank loan — best for asset-heavy businesses or strong borrowers.** 20–30% down, 5–7 year term, lower fees than SBA. Better if you have significant personal liquidity and don't want the SBA paperwork requirements.

**Seller financing — not a bank loan, but fills the gap.** The seller carries 10–30% of the purchase price as a note. Often used alongside SBA to reduce the cash injection required. Ask for it on every deal.

**ROBS (Rollover for Business Startups) — uses retirement funds as equity.** You roll over a 401(k) into a new C-corp, which then buys shares in the acquisition entity. Allows you to use pre-tax retirement savings as the down payment. Requires a TPA and careful compliance.

Step 3 — Find Lenders Who Specialize in Business Acquisitions

Not every bank understands business acquisitions. A consumer bank or community bank without an active SBA department may technically be able to make acquisition loans — but they'll be slow, require more documentation than necessary, and may decline deals that a specialist would approve.

Where to find the right lenders:

**SBA PLP lenders** — check the SBA's lender directory for Preferred Lender Program status. These banks make SBA decisions in-house and close in 30–45 days instead of 60–90.

**Business broker referrals** — ask brokers in your target market which lenders they've closed deals with recently. This is the fastest path to a qualified lender recommendation.

**Specialized national SBA lenders** — Live Oak Bank, Newtek, ReadyCap, and Harvest Small Business Finance all specialize in SBA acquisition lending nationally. They have standardized processes and experience with unusual deal types.

Apply to 2–3 lenders simultaneously. Lenders don't communicate with each other about your application, and having options creates leverage at commitment time.

Step 4 — Build Your Loan Package Before You Have a Deal

Most buyers assemble their loan package after they've signed an LOI — when they're already racing a 30-day exclusivity clock. A better approach: build the package before you have a deal, so when the LOI is signed, you can submit to the lender within 48 hours.

What goes in the package: - Signed personal financial statement (current within 90 days) - 3 years of personal federal tax returns - 2-page professional biography - Credit authorization for the lender to pull your personal credit - 1-page acquisition criteria and thesis

When you find a deal, add: - 3 years of business tax returns and P&Ls - Broker's offering memorandum or CIM - Your signed LOI - Brief description of deal structure and down payment source

Buyers who walk in the door with a complete package on day 1 of exclusivity close faster and with fewer conditions than buyers who trickle documents in over three weeks.

Step 5 — What to Expect After You Apply

Once you submit a complete application package, here's what happens:

**Week 1–2:** Lender reviews the personal financials and does a preliminary deal assessment. You'll likely get an initial conditional approval or a request for additional documents.

**Week 2–4:** The lender orders a third-party business appraisal ($3K–$6K, paid by the buyer). They also conduct their own recast of the business's financials to calculate adjusted SDE. This recast may differ from the broker's version — often conservatively.

**Week 3–5:** Lender submits to SBA if they're not a PLP lender. SBA review adds 2–4 weeks. PLP lenders skip this step.

**Commitment letter:** The lender issues a commitment letter with conditions. Address every condition immediately. Common conditions: landlord approval for lease assignment, life insurance policy on buyer, environmental review if real estate is involved.

**Close:** Lender funds the loan, seller receives proceeds, you receive the business.

Deal Flow OS helps you find and filter acquisition targets so that the businesses you bring to lenders are the ones that actually pass underwriting — saving you time and application fees on deals that won't close.