Can I use an SBA loan to buy an existing business?
Short answer
Yes. A 7(a) loan can fund all or part of a business purchase, as a stock or asset deal. 13 CFR § 120.202 allows it, and SOP 50 10 8.1, Appendix 15, sets the rules. A 504 loan can only fund the fixed assets.
Yes, a 7(a) loan can buy a business. 13 CFR § 120.202 lets a borrower purchase part or all of an owner's interest, or part or all of a business itself. SOP 50 10 8.1, Appendix 15, sets the rules for every 7(a) change of ownership.
Conditions on every deal
- The sale must promote the sound development of the small business or preserve its existence.
- A 7(a) loan cannot be made solely to an individual. The small business must be the borrower or a co-borrower.
- The lender must demonstrate that you can operate the business and repay the loan from its cash flow.
- Financial due diligence is required on every transaction (Appendix 15, Para. A).
What most deals need
An Initial Acquisition, the default category, needs equity of 10%, which cannot be reduced or eliminated. Debt service coverageCash available for loan payments, divided by those payments. Above 1 means the cash covers them. Full definition must reach 1.25:1. A business valuation is required in most cases. Lenders can add their own requirements.
Programs that cannot do it
CAPLines, the Export Working CapitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition Program and revolving facilities cannot fund a change of ownership (Section A, Ch. 2, Para. A). Manufacturers' Access to Revolving Credit (MARC) loans cannot either (Section B, Ch. 3, Para. A.2). A 504 loan can finance only the eligible long-term fixed assets in a sale (Section C, Ch. 1, Para. C.13).
Ask lending partners about your loan
Tell us the amount you need and what it is for. We refer you to lenders that may fund businesses like yours, and it costs you nothing.
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