By Tera Loans Editorial · Published June 18, 2026
Business Acquisition Loans: Financing a Company Purchase
A business acquisition loan finances buying an existing company. Learn how SBA 7(a), conventional, and seller financing work, typical rates, and what lenders require to fund your purchase.
A business acquisition loan is financing used to buy an existing company, its assets, or a controlling stake. Most buyers combine an SBA 7(a) loan or conventional term loan with a 10–30% down payment and sometimes a seller note. Approval hinges on the target's cash flow, your experience, and credit.
Buying an established business is often a smarter bet than starting from scratch: you inherit revenue, customers, staff, and systems on day one. But few buyers have the full purchase price in cash. That's where acquisition financing comes in. This guide breaks down how these loans work, what they cost, and how to put together a package lenders will fund.
What is a business acquisition loan?
A business acquisition loan is term financing structured specifically around the purchase of an operating company. Unlike a generic term loan, the underwriting centers on the target business: its historical cash flow has to comfortably cover the new debt payment on top of a reasonable salary for you, the buyer.
Lenders look at a metric called the debt service coverage ratio (DSCR) — the business's annual cash flow divided by its annual debt payments. Most want a DSCR of at least 1.25, meaning the company generates 25% more cash than it needs to service the loan. The deal also has to make sense structurally: you'll buy either the company's assets (most common, cleaner liability-wise) or its equity/stock.
The business pays for itself
The core principle of acquisition lending: the company you're buying should generate enough cash flow to repay the loan and pay you. Lenders underwrite the target's financials at least as hard as your personal credit. A profitable business with clean books is your strongest asset in the application.
What types of loans can finance a business purchase?
There's no single product. Most acquisitions stack two or three of these:
| Financing type | Typical rate | Down payment | Best for |
|---|---|---|---|
| SBA 7(a) loan | Prime + 2.25–4.75% | 10% minimum | Most acquisitions under $5M |
| Conventional term loan | 8–14% | 20–30% | Strong buyers, asset-heavy deals |
| Seller financing | 5–8% | Negotiable | Bridging the gap, aligning seller |
| SBA 504 (real estate) | Fixed, ~6–7% | 10% | Deals including owned property |
The SBA 7(a) loan is the workhorse of acquisition financing. It allows up to $5 million, terms up to 10 years for goodwill-heavy purchases, and only a 10% equity injection. Because the SBA guarantees a portion, lenders take on businesses that conventional banks would pass on. Read more on our SBA loans page. Remember: SBA sets the guidelines, but individual lenders layer on their own overlays for credit, industry, and experience.
Seller financing — where the current owner accepts a portion of the price as a note paid over time — is one of the most powerful tools in any deal. It reduces your cash need, signals the seller believes in the business, and on SBA deals a properly structured seller note on full standby can count toward part of your equity injection.
How much will an acquisition loan cost?
Run your numbers before you make an offer. Use the calculator below to estimate a monthly payment on a typical 10-year SBA-style acquisition note, then sanity-check it against the target's cash flow.
Estimate your monthly payment
A representative estimate at 9%–13% APR. Actual rates and terms vary by business and product.
For a deeper amortization breakdown, our payment calculator lets you model different terms side by side. The key test is simple: after the loan payment and your salary, does the business still turn a profit? If not, you're either overpaying or the deal needs restructuring.
What do lenders require to fund the deal?
Acquisition underwriting is more involved than a working-capital request. Build your package early.
Letter of intent and purchase agreement
Lenders need a signed LOI or purchase agreement showing the price and deal terms before they'll move into underwriting. This anchors the entire analysis.
3 years of the target's financials and tax returns
Profit and loss statements, balance sheets, and business tax returns prove the cash flow that will repay the loan. Clean, reconciled books dramatically speed approval.
A business valuation
SBA and conventional lenders require a third-party valuation for goodwill-heavy deals to confirm you're not overpaying. The lender usually orders this.
Your resume and personal financials
Relevant industry or management experience is one of the biggest approval factors. Lenders want evidence you can actually run the company you're buying.
Watch the goodwill and personal guarantee
Most acquisition prices exceed the company's hard assets — the difference is goodwill. SBA loans cap how much goodwill they'll finance and may require more equity on goodwill-heavy deals. Also expect a personal guarantee and often a lien on your home if you have equity. Read these terms carefully.
SBA vs. conventional acquisition financing: which is right?
Pros
- SBA 7(a): only 10% down, longer terms, easier qualification
- SBA seller notes can count toward your equity injection
- Conventional: faster closings, no SBA fees or paperwork
- Conventional: more flexible for very strong, experienced buyers
Cons
- SBA: more paperwork, 45–90 day closings, guarantee fees
- SBA: strict goodwill and use-of-funds rules
- Conventional: 20–30% down and higher cash-flow bar
- Conventional: shorter terms mean larger monthly payments
For most first-time buyers and deals under $5 million, SBA 7(a) wins on the down payment and term length alone. Conventional financing makes sense when you have substantial cash, strong industry experience, and want to avoid SBA timelines — or when the deal is largely backed by real estate or equipment you can collateralize.
Stack your financing
The strongest acquisition structures rarely use one source. A common stack: SBA 7(a) for 80%, a 10% seller note on standby, and 10% buyer cash. This minimizes your out-of-pocket while keeping the seller invested in a smooth transition.
What if the deal includes equipment or ongoing capital needs?
Many acquisitions need more than the purchase price. If the target relies on heavy machinery or vehicles, consider pairing your acquisition loan with dedicated equipment financing so you're not tying up acquisition proceeds. And if you'll need cushion for payroll and inventory through the transition, a business line of credit or working capital facility keeps cash flowing while you take the reins. Some buyers also use invoice factoring to smooth receivables in a business with long payment cycles.
Plan the full capital picture — purchase price, transition costs, and operating runway — before you sign. Buyers who only finance the sticker price often get squeezed in month two.
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