From SBA-backed asset purchases to seller-financed earnouts, understand the deal structures that get restaurant transactions across the finish line — and protect both sides of the table.
Buying or selling a restaurant in the $1M–$5M revenue range involves deal structures that must account for the sector's unique risks: thin margins, cash-heavy revenue verification challenges, lease assignment requirements, equipment capital exposure, and key-person dependency on the outgoing owner-chef. Unlike software or professional services acquisitions, restaurant deals require buyers and sellers to address liquor license transferability, landlord cooperation, POS reconciliation, and staff retention as structural — not just diligence — considerations. The most common structures in this market combine SBA 7(a) financing with a seller note, or pair a conventional asset purchase with an earnout tied to post-close revenue performance. Understanding which structure fits your specific situation is the single most important step in getting a restaurant deal done at a price both parties can defend.
Find Restaurants & Food Service Businesses For SaleSBA 7(a) Asset Purchase
The most widely used structure for restaurant acquisitions under $5M in revenue. The buyer acquires the business assets — including equipment, leasehold improvements, trade name, recipes, and goodwill — using an SBA 7(a) loan covering up to 90% of the purchase price. The buyer injects a minimum 10% equity down payment. The SBA loan is typically amortized over 10 years at a variable rate tied to prime. Lenders will require a full business plan, three years of restaurant tax returns, POS-to-bank reconciliation, and lease assignment documentation before approval.
Pros
Cons
Best for: First-time buyer-operators with hospitality experience acquiring an established single-location concept with clean financials, a transferable lease with 5+ years remaining, and $200K–$500K in documented seller's discretionary earnings.
Seller Financing with Partial Seller Note
The seller carries back 20–30% of the purchase price in the form of a promissory note, typically structured over 3–5 years at 6–8% interest. This structure is frequently layered on top of an SBA 7(a) loan, allowing the buyer to meet SBA equity injection requirements while reducing the cash needed at closing. In standalone seller-financed deals with no SBA involvement, the seller may carry 60–80% of the price. The seller note is subordinated to any senior SBA or bank debt and is often secured by the business assets.
Pros
Cons
Best for: Seller-financed notes work best when the seller is transitioning out over 6–12 months with a training period, the restaurant has stable trailing revenue, and the buyer is a qualified operator but lacks full SBA equity injection from personal funds.
Earnout Structure
A portion of the purchase price — typically 10–20% — is deferred and paid to the seller only if the restaurant achieves agreed revenue or EBITDA targets in the 12–24 months following close. Earnouts are common when there is a valuation gap driven by the seller's belief in near-term upside the buyer is not yet willing to pay for, or when trailing revenue has been inconsistent. In restaurant deals, earnout metrics are most commonly tied to gross revenue thresholds tracked through the POS system and corroborated by bank deposits.
Pros
Cons
Best for: Earnouts are most appropriate when the seller is projecting strong growth from a new catering contract, a recently renovated space, or a new delivery revenue stream that has not yet appeared in trailing twelve-month financials.
Full Asset Purchase — All Cash or Conventional Financing
The buyer acquires all restaurant assets with a combination of personal capital and conventional bank financing, with no SBA guarantee and no seller financing. This structure is faster and involves fewer approval layers, but requires substantially more buyer equity — typically 25–35% down — and lenders are more conservative in underwriting food service cash flows without the SBA guarantee backstop. More common among multi-unit operators, PE-backed buyers, or well-capitalized individuals with established banking relationships.
Pros
Cons
Best for: Multi-unit operators acquiring a second or third location, PE-backed restaurant groups executing a roll-up strategy, or highly liquid individual buyers acquiring a concept where speed of close is critical to capturing a favorable lease or pre-empting other bidders.
First-Time Buyer Acquiring a Single-Location Full-Service Restaurant with $400K SDE
$1,200,000
SBA 7(a) loan: $960,000 (80%); Buyer equity injection: $120,000 (10%); Seller note: $120,000 (10%)
SBA loan at prime plus 2.75% over 10 years, fully amortizing. Seller note at 7% interest over 4 years, subordinated to SBA lender, with a 6-month payment holiday post-close to allow buyer to stabilize operations. Seller note secured by business assets and personally guaranteed by buyer. Lease must be assigned with landlord approval as a condition to close.
Retiring Owner-Chef Selling Established Casual Dining Concept with Inconsistent Trailing Revenue
$850,000
Buyer equity: $170,000 (20%); SBA 7(a) loan: $595,000 (70%); Earnout: $85,000 (10%)
Base purchase price of $765,000 funded through SBA loan and buyer equity. Earnout of $85,000 payable at month 18 if gross revenue in the first 12 post-close months equals or exceeds $1,400,000 as documented by POS system reports and corroborated by bank deposits. Seller to remain available for 90-day transition consulting at no additional cost. Earnout measurement methodology and dispute resolution mechanism to be clearly defined in the asset purchase agreement.
Multi-Unit Operator Acquiring Fast Casual Concept with Three Locations for Platform Expansion
$3,200,000
Buyer equity: $960,000 (30%); Conventional bank financing: $1,920,000 (60%); Seller note: $320,000 (10%)
Conventional commercial real estate and equipment loan at 6.5% fixed over 7 years secured by all three location leasehold improvements and equipment. Seller note at 7.5% over 3 years with full recourse and cross-default provisions tied to senior bank loan. All three lease assignments must be executed and landlord consents obtained as a simultaneous condition to closing. Key kitchen manager retention agreements and 90-day non-solicitation provisions for outgoing owner included as closing conditions.
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The most common structure is an SBA 7(a) asset purchase where the buyer puts in 10% equity, the SBA loan covers 80%, and the seller carries a 10% subordinated note over 3–5 years. This structure works well for single-location concepts with $200K–$500K in documented seller's discretionary earnings and a transferable lease with at least 5 years remaining. It gives the buyer maximum leverage while giving the seller a clean exit with a modest ongoing payment stream.
Yes, though it is less common in the lower middle market. Standalone seller-financed deals typically require the seller to carry 60–80% of the purchase price, which most restaurant sellers are unwilling to do without a substantial down payment of 20–30% from the buyer. These deals work best when the seller wants a faster close, the buyer cannot qualify for SBA financing, or the restaurant has financial characteristics — such as heavy cash sales — that make bank underwriting difficult. Expect to negotiate a higher interest rate of 8–10% and a shorter note term of 3–4 years in exchange for the seller taking on more credit risk.
An earnout defers a portion of the purchase price — typically 10–20% — and pays it to the seller only if specific revenue or cash flow targets are hit in the 12–24 months after closing. In restaurant deals, earnouts are most often tied to gross revenue thresholds measured through the POS system and corroborated by bank deposits. For example, if a seller is projecting $1.6M in revenue based on a new catering contract but trailing revenue was $1.3M, the buyer might agree to an additional $100,000 earnout payment if revenue reaches $1.5M in month 12. The key is defining the measurement methodology with legal precision in the asset purchase agreement before signing.
In an asset purchase — the standard structure for restaurant acquisitions — the buyer does not automatically assume the seller's employment contracts. The buyer hires staff on new terms at close. This means there is no legal obligation to retain existing employees, but practically, the loss of a head chef, kitchen manager, or long-tenured front-of-house staff can devastate post-close revenue. Buyers should negotiate key employee retention agreements as a condition of closing, and sellers should help facilitate introductions and secure informal commitments from critical staff before the deal closes.
SBA 7(a)-financed restaurant acquisitions typically take 60–90 days from signed LOI to close, assuming the seller has clean financial documentation, the lease assignment can be negotiated in parallel, and there are no outstanding health code violations or liquor license complications. Deals with messy financials, landlord resistance on lease assignments, or liquor license transfer requirements in states with long processing timelines can take 4–6 months. Buyers and sellers should build buffer time into their LOI exclusivity periods and communicate with landlords early in the process.
Most restaurant acquisitions in the $1M–$5M revenue range involve leased locations, not real estate ownership. Buying the underlying real estate adds significant capital cost and complexity, but eliminates lease renewal risk and creates long-term asset value. When real estate is available as part of the deal, buyers with access to conventional commercial real estate financing should evaluate it seriously, especially in high-traffic locations where lease rates could escalate sharply at renewal. For buyers focused purely on the business operation, securing a long-term lease with favorable renewal options and a below-market base rent is the functional equivalent of real estate ownership at a fraction of the capital cost.
Restaurant businesses in the lower middle market typically trade at 1.5x to 3.5x seller's discretionary earnings. Concepts at the lower end of the range tend to have heavy owner involvement, inconsistent revenue, aging equipment, or short lease terms. Businesses commanding 3x or higher typically have diversified revenue streams across dine-in, catering, and delivery; a management team capable of operating without the owner; a favorable long-term lease; and documented SDE margins above 15% with clean financials. The SDE multiple should always be evaluated alongside the quality of add-backs, the lease terms, and the estimated near-term capital expenditure requirements for equipment replacement.
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