# Buying a business with an SBA loan: questions and answers **Short answer:** This page lists 27 answers on buying a business with an SBA loan. Each gives the rule first and names the SBA source it rests on. Canonical page: https://www.sbaexpress.loans/answers/ownership-changes/ Last checked: 2026-11-09 These answers cover buying, selling and buying out a business with an SBA loan, from valuation to seller notes. ## All 27 answers on buying a business with an SBA loan Each entry gives the short answer. Open it for the full explanation and its sources. ### [Can I use an SBA loan to buy an existing business?](https://www.sbaexpress.loans/answers/buy-existing-business-with-sba-loan/) 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. ### [What are the four SBA change of ownership categories?](https://www.sbaexpress.loans/answers/sba-change-of-ownership-types/) Initial Acquisition, Business Expansion, Owner Buyout, and employee stock ownership plan (ESOP) and Cooperative. The category sets the equity, debt service coverage and seller rules. Initial Acquisition is the default. Source: SOP 50 10 8.1, App. 15, Para. A.1. ### [Is SBA acquisition equity based on price or total project cost?](https://www.sbaexpress.loans/answers/sba-acquisition-equity-total-project-cost/) On most deals it is based on total project cost, not the price alone. An Owner Buyout is the exception, where equity is based on the purchase price of the business. Source: SOP 50 10 8.1, App. 15, Para. C.2.a. ### [If SBA equity is waived, can the loan include working capital?](https://www.sbaexpress.loans/answers/waived-equity-sba-working-capital-limit/) Not dedicated permanent working capital. A lender that eliminates equity on a Business Expansion or Owner Buyout cannot include it in a 7(a) term loan within 90 days. Source: SOP 50 10 8.1, App. 15, Para. C.2.a. ### [How does a paying seller note affect SBA debt service coverage?](https://www.sbaexpress.loans/answers/paying-seller-note-sba-debt-service-coverage/) It counts in full. A seller note not on full standby is limited by the business valuation and must be covered by debt service coverage. An interest-only note is tested on an amortization of no more than 10 years. Source: SOP 50 10 8.1, App. 15, Paras. A and C.2.b. ### [Does standby time count toward the seller note refinance test?](https://www.sbaexpress.loans/answers/seller-note-standby-time-36-month-refinance-test/) Probably not. A seller note can be refinanced after it has been in place and current for 36 months, and Appendix 15, Para. A.3.a, adds "not on standby." Appendix 15 governs if Appendix 14 conflicts. Confirm with your lender. Source: SOP 50 10 8.1, App. 15, Para. A.3.a. ### [Can an SBA loan finance goodwill in a business purchase?](https://www.sbaexpress.loans/answers/sba-loan-finance-goodwill/) Yes. A 7(a) change of ownership loan can finance goodwill and other intangibles if Appendix 15 due diligence is met. A 504 loan cannot. Financing for intangibles has a maximum term of 10 years. Source: SOP 50 10 8.1, App. 15, Para. A; App. 17, Para. A.1. ### [Does an SBA business purchase require an independent valuation?](https://www.sbaexpress.loans/answers/sba-business-valuation-requirement/) Usually yes. SOP 50 10 8.1 requires a business valuation by a Qualified Source. If the Business Purchase Price is $350,000 or less and buyer and seller have no close relationship, the lender may value it itself. Source: App. 15, Para. C.1.a. ### [What if the purchase price is above the SBA valuation?](https://www.sbaexpress.loans/answers/purchase-price-above-sba-business-valuation/) You must cover the gap with equity. SOP 50 10 8.1 says any amount paid above the business valuation must be made up by equity. That equity can include seller debt on full standby. Source: App. 15, Paras. C.1.a and C.2.a. ### [When does an SBA acquisition need a quality of earnings report?](https://www.sbaexpress.loans/answers/sba-quality-of-earnings-requirement/) When the Purchase Price is $3,000,000 or more on an Initial Acquisition or Business Expansion. Owner Buyouts, ESOP and Cooperative deals, and owner-occupied Special Purpose Property purchases are exempt. Source: SOP 50 10 8.1, App. 15, Para. C.1.b. ### [What debt service coverage does an SBA acquisition need?](https://www.sbaexpress.loans/answers/sba-debt-service-coverage-business-purchase/) 1.25:1 for an Initial Acquisition, Owner Buyout, or ESOP and Cooperative deal, and 1.15:1 for a Business Expansion. Global cash flow must also reach 1:1. Source: SOP 50 10 8.1, App. 15, Para. C.2.b. ### [Can seller add-backs be used to qualify for an SBA acquisition?](https://www.sbaexpress.loans/answers/seller-add-backs-sba-cash-flow/) Yes, if the lender justifies each one. SOP 50 10 8.1 lets lenders make prudent adjustments to the acquired company's cash flow, but unsupported adjustments cannot be used to meet coverage. Source: App. 15, Para. C.2.b. ### [Can the seller stay involved after an SBA-financed sale?](https://www.sbaexpress.loans/answers/can-seller-stay-after-sba-acquisition/) It depends on the deal. After an Initial Acquisition or Business Expansion, the seller must exit and can only consult for up to 24 months. In a Partial Owner Buyout or controlling ESOP or cooperative purchase, the seller may stay. Source: SOP 50 10 8.1, App. 15, Para. A. ### [Are seller earnouts allowed in an SBA business purchase?](https://www.sbaexpress.loans/answers/sba-seller-earnout-rules/) No. SOP 50 10 8.1 prohibits seller earnouts on 7(a) changes of ownership. Buyer rebates based on business performance are allowed, and rebate cash must pay down the 7(a) loan. Source: App. 15, Para. A. ### [Can I use an SBA loan to buy out my business partner?](https://www.sbaexpress.loans/answers/buy-out-business-partner-sba-loan/) Yes. In an Existing Owner Buyout, existing owners or employees buy another owner's entire stake and end up with 100%. The buyers must have actively participated for the last 24 consecutive months. Source: SOP 50 10 8.1, App. 15, Para. A.1.c. ### [Can an SBA loan fund a partial buyout of an owner?](https://www.sbaexpress.loans/answers/partial-owner-buyout-sba-rules/) Yes. Proceeds can buy part of an owner's interest if at least one original owner stays and personally guarantees the loan. Anyone gaining new ownership must be a co-borrower, at any percentage. Source: 13 CFR § 120.202; SOP 50 10 8.1, App. 15, Para. A.1.c.ii. ### [Must a selling owner under 20% guarantee the SBA loan?](https://www.sbaexpress.loans/answers/selling-owner-under-20-percent-guaranty/) Yes, in a partial buyout. A selling owner who takes proceeds and keeps less than 20% must give a full guaranty for at least two years after final disbursement. Release requires 12 consecutive current months. Source: SOP 50 10 8.1, App. 15, Para. A.1.c.ii. ### [Can an employee buy the business with an SBA loan?](https://www.sbaexpress.loans/answers/employee-buy-business-sba-loan/) Yes. If a single owner sells 100% to someone employed there for at least 24 months before applying, the deal is an Owner Buyout. With less tenure, it must meet Initial Acquisition credit standards. Source: SOP 50 10 8.1, App. 15, Para. A.1.c.i. ### [Can an outside investor buy in through an SBA owner buyout?](https://www.sbaexpress.loans/answers/outside-investor-owner-buyout-sba-limits/) Yes, within limits. A person employed by the business for fewer than 24 months may acquire less than 50% and cannot become the largest shareholder. Otherwise the deal follows Initial Acquisition credit standards. Source: SOP 50 10 8.1, App. 15, Para. A.1.c. ### [Can a new holding company be used in an SBA partial buyout?](https://www.sbaexpress.loans/answers/holding-company-partial-buyout-sba/) Not in a multi-step structure. SOP 50 10 8.1 bars a partial change of ownership in which existing owners form a new entity to bring in a new owner. That entity would become the 100% owner of the operating company. Source: App. 15, Para. A.1.c.ii. ### [Can my company use an SBA loan to buy a competitor?](https://www.sbaexpress.loans/answers/buy-competitor-sba-business-expansion/) Yes, as a Business Expansion. It needs at least two full fiscal years under current ownership and must buy 100% of a business in the same four-digit NAICS group. Coverage is 1.15:1. Source: SOP 50 10 8.1, App. 15, Para. A.1.b. ### [Which change of ownership rules does SBA Express relax?](https://www.sbaexpress.loans/answers/sba-express-change-of-ownership-rule-differences/) Only two. The lender may do its own valuation when the Business Purchase Price is $350,000 or less. The fully secured test excludes other commercial real estate. Source: SOP 50 10 8.1, Sec. B, Ch. 2, Para. A.2. ### [Can I pair a 504 and a 7(a) to buy a business and its building?](https://www.sbaexpress.loans/answers/combine-504-and-7a-loan-buy-business-and-building/) Yes. The 504 finances the eligible fixed assets and a 7(a) can finance goodwill, receivables and working capital. They must be separate loans and cannot be blended into one maturity. Source: SOP 50 10 8.1, App. 15, Para. B.1; Sec. C, Ch. 1, Para. C.13. ### [Does SBA treat asset and stock purchases differently?](https://www.sbaexpress.loans/answers/asset-purchase-vs-stock-purchase-sba/) Both are eligible under 7(a). An asset purchase counts as a change of ownership if you buy all or substantially all of the assets and continue the seller's operations. Without that continuity, the lender may evaluate it as a start-up. Source: SOP 50 10 8.1, App. 15, Para. A. ### [How does SBA blend the term when a deal includes a building?](https://www.sbaexpress.loans/answers/sba-acquisition-loan-maximum-term/) The term is a weighted average of the uses of proceeds, rounded to the nearest full year. Only the real estate portion can exceed 10 years, up to 25. Source: SOP 50 10 8.1, App. 15, Para. B.1. ### [Can I buy a business from a family member with an SBA loan?](https://www.sbaexpress.loans/answers/buy-business-from-family-sba-loan/) Yes. We found no bar in SOP 50 10 8.1, but a close relationship ends the lender's option to do its own valuation. On a 504, the property must appraise for 100% of its estimate. Source: App. 15, Para. C.1.a; Sec. C, Ch. 1, Para. E.2.b. ### [Do I need industry experience to buy a business with SBA?](https://www.sbaexpress.loans/answers/sba-buyer-industry-experience-requirement/) SOP 50 10 8.1 sets no minimum years of experience. But the lender must demonstrate your ability to operate the business and describe your industry experience and management team. Standards vary by lender. Source: App. 15, introduction and Para. C.2.b.