You signed the purchase agreement four weeks ago. The financing contingency runs sixty days. The seller has already told his controller he is retiring in the spring, the landlord wants to know who is signing the lease assignment, and your accountant is asking for a copy of the appraisal that nobody has ordered yet. Somewhere in that pile is a broker who told you on the first call that this would be straightforward.
That is the situation most buyers are in when they start looking seriously at who is representing their deal. Not at the beginning, when everything is theoretical. About a month in, when the clock is real.
Acquisition financing through the SBA 7(a) program is common enough that it should be a solved problem. In fiscal year 2025, the Small Business Administration reported roughly 77,600 7(a) loans approved for about $37 billion, and independent analysis of the agency’s loan-level data puts change-of-ownership transactions at somewhere near a fifth of that dollar volume. Thousands of these deals close every year. And yet a large share of them fall apart in underwriting, usually over something the buyer was never warned about.
The difference between the two outcomes is very often the person structuring the file. This guide is about how to tell one from the other before you hand your deal over.
Why Buying a Business Is a Different Financing Problem Than Borrowing Against One
Most SBA lending is secured by something you can point at. A building. A piece of equipment. A truck. The lender can look at an appraisal, apply an advance rate, and know roughly what it recovers if things go wrong.
A business acquisition loan is different. You are buying the business itself and the cash flow it produces. Once you strip out whatever hard assets come along with the deal, most of what you are paying for is goodwill.
Goodwill, in this context, means the intangible value of an operating business: its customer relationships, its trained staff, its reputation, its route density, its recurring contracts. It has real economic value and almost no liquidation value. That is the whole problem. A lender writing a $1.4 million loan against a business where $1.1 million of the purchase price is goodwill is lending against next year’s cash flow and very little else.
This is why the 7(a) program matters so much here. Conventional commercial lenders are generally reluctant to finance goodwill at any meaningful loan-to-value. The federal guarantee is what makes the math work for the bank, which is why the program ends up carrying so much of the small business acquisition market.
It also explains why an acquisition file behaves nothing like a real estate file:
- The collateral analysis is secondary. The lender will still take a lien on everything and file a UCC, but the credit decision turns on whether the target’s historical cash flow covers the new debt with room to spare.
- Seller behavior becomes a credit issue. How long the seller stays on, what they are paid, whether they carry paper, and whether they compete afterward all show up in the credit memo.
- The business being bought has to be eligible on its own terms, and so do you. Two clean parties can still produce an ineligible transaction because of how the deal was papered.
- Timing is external. You are working against a purchase agreement someone else drafted, with a contingency date you may not control.
A broker who mostly places real estate-backed loans can be excellent at that work and still be out of their depth here. It is a genuinely different set of problems.
The Rulebook That Decides Your Deal, and What Changed in It
The operating manual for all of this is the SBA’s Standard Operating Procedure for lender loan programs. The current version, SOP 50 10 8, took effect on June 1, 2025, and applies to applications submitted on or after that date. If your broker cannot tell you which SOP version governs your file and what it says about change of ownership, that is a short conversation and a useful one.
Several provisions in it hit acquisition buyers directly.
Equity injection
The equity injection is the buyer’s own money that has to go into the transaction before the SBA-guaranteed loan funds. For a complete change of ownership, the requirement is a minimum of 10 percent of total project cost, and total project cost means everything required to close the deal rather than the purchase price alone. Closing costs, working capital, inventory, and fees all sit inside that number, which is why the figure buyers calculate at home is usually low.
What counts is specific. Unborrowed cash counts. Cash from a personal loan counts if you can show a repayment source outside the business. Grants count if there is no clawback. A promissory note or a gift letter on its own does not. Lenders are required to verify the money actually moved and actually got used, using wires, canceled checks, settlement statements, and at least thirty days of account statements. Starfield and Smith, a law firm that works with SBA lenders, published a useful review of the equity injection rules under the current SOP that is worth reading before you plan your down payment.
Seller notes
A seller note is financing the seller provides, where part of the purchase price is paid out over time rather than at closing. Buyers love them because they close the gap between what the bank will lend and what the buyer has in the bank.
Under the current rules, a seller note can count toward the required equity injection only if it is on full standby, meaning no principal and no interest payments, for the life of the SBA loan. And even then, it can cover no more than half of the required injection. On a 10 percent requirement, that is 5 percent from the seller note and 5 percent that has to be real money from you.
That is a harder ask of a seller than the prior standard, and plenty of sellers will not agree to it once their attorney explains it. A seller note can still be part of the capital stack outside the injection calculation, on different terms, but the two uses are not interchangeable and mixing them up is one of the more expensive mistakes a buyer can make.
Valuation
If the intangible portion of the deal being financed exceeds $250,000, an independent valuation from a qualified appraiser is required. Below that threshold, the lender can generally do the analysis in-house unless its own credit policy says otherwise. If you and the seller are related, or already co-own the business together, an independent valuation is required regardless of the amount.
Practically, this means most goodwill-heavy acquisitions of any size trigger an outside valuation, and that valuation takes weeks and can come in under your agreed price. Who orders it, when, and what happens if it comes in low are questions to settle early rather than in week seven.
Ownership, structure, and guarantees
Three more provisions worth knowing. Businesses receiving SBA financing must be 100 percent owned and controlled by United States citizens, lawful permanent residents, or qualified United States Nationals. Partial changes of ownership have to be structured as stock or equity purchases rather than asset purchases, and every equity holder in a partial change of ownership must personally guarantee the loan for at least two years regardless of how small their stake is. In a complete change of ownership, investors holding less than 20 percent generally are not required to guarantee.
Cash flow
The program sets a floor on repayment ability. Under the current guidance, the applicant’s debt service coverage ratio must be at least 1.1 to 1 on a historical or projected basis. Most lenders underwrite well above that floor, commonly looking for 1.25 or better, but the floor is the floor.
There has also been a real shift in how small acquisition loans get underwritten. Effective March 1, 2026, following an SBA procedural notice issued in January 2026, federally regulated lenders were directed to stop relying on the SBA’s credit scoring model for 7(a) Small Loans and instead run the same commercial credit analysis they would on a conventional loan, including debt service coverage analysis, recent business bank statements, and a projected earnings analysis. If you were told a year ago that a small acquisition would sail through on a score, that advice has expired.
Questions That Separate an Acquisition Broker From a Generalist
You are not going to audit a broker’s competence by reading their website. Everyone in this business says the same six things. What works better is a short list of specific questions where a generalist and a specialist give visibly different answers.
How many change of ownership files have you closed in the last twelve months?
Not applications taken. Not deals worked. Closed, funded, in the last year, specifically change of ownership rather than real estate or equipment. A broker who does this work regularly will answer with a number and then start telling you about the difficult ones. A broker who does it occasionally will change the subject to their lender network.
Follow it with a size question. A firm that closes twenty deals a year at $300,000 is running a very different operation from one closing eight at $2 million, and neither is automatically better. It matters only that their normal deal looks something like yours.
Which lenders will fund my industry, at my size, in my state?
This is the question that reveals whether someone actually places deals or just forwards them.
Lender appetite in SBA 7(a) is narrower and stranger than most buyers expect. Large conservative banks quietly decline entire categories: some will not touch a car wash or a gas station regardless of the numbers. Some require you to move all your deposits to them as a condition. Some are effectively closed in states where the closing process involves attorneys and extra cost, which is why certain markets are much harder to finance than their economies suggest. Non-bank SBA lenders often move faster but price differently. Regional banks may be terrific inside their footprint and useless outside it.
A broker who works this market daily will answer with a short list and a reason for each name. A weaker answer sounds like a brochure: national coverage, hundreds of lenders, every industry.
How will you structure my equity injection, and where is the money coming from?
Ask them to walk through the actual sources on your deal, in dollars, against total project cost rather than purchase price. If a seller note is part of the plan, ask directly whether it is being counted toward the injection and therefore going on full standby for the life of the loan, or sitting outside the injection on ordinary terms. The answer should be immediate.
What happens when the first lender says no?
Declines are normal. A file that gets declined by one bank on industry policy can be approved by another on the same numbers, because the second bank simply has a different appetite. The question is what your broker does on that day.
A generalist tends to go quiet, or come back with a non-SBA product at a worse rate. A specialist already has the second and third lender identified before the first one answers, and knows which parts of the file need reworking to fit each of them.
Who is actually working my file after the introduction?
This is the one buyers underestimate. An introduction is a phone call. Closing a change of ownership is three months of chasing an appraiser, an interim balance sheet, a lease assignment, the seller’s tax transcripts, and a corporate resolution nobody can find, while keeping a credit officer’s attention through all of it. If your deal lands on the wrong desk, it can sit there for weeks with nothing visibly wrong.
Specialist firms build their entire operation around that gap. 7aSavvy, for instance, works as an SBA 7(a) loan broker on larger transactions, generally in the $500,000 to $5,000,000 band, and routes each borrower to a named person at vice president level or higher inside the lender rather than to a general application queue. If the first lender does not work out, it re-matches the borrower to another lender in its network and stays with the file until the loan closes, and because the firm is paid by the lender on funding rather than by the borrower, the borrower pays nothing for the brokering itself. That combination, deliberate lender selection for large 7(a) deals plus continued involvement after the handoff, is a reasonable benchmark to hold other firms against.
How do you get paid, and will it appear on my Form 159?
Covered in detail below, but ask it in the same breath as the others. The answer should be specific, and it should be volunteered without discomfort.
One practical test: ask for the name of the credit officer or business development officer who would see your file at the lender they intend to use. Someone who places deals in that shop regularly will know it. Someone who submits into a portal will not.
How Broker Fees Actually Work
Fee structures in this business vary more than they should, and the language is deliberately soft. Three separate things get called a fee, and only one of them is the broker’s.
The SBA guaranty fee is not a broker fee. It is what the lender pays the government for the guarantee, and it is normally passed to the borrower and financed into the loan. It scales with loan size. For long-term loans, it runs 2 percent of the guaranteed portion at $150,000 or less, 3 percent between $150,001 and $700,000, and above $700,000 it is 3.5 percent of the guaranteed portion up to $1 million plus 3.75 percent on the guaranteed portion above that. These are reviewed annually and typically change in October, so confirm the current schedule for the fiscal year your loan closes in.
Lender fees are separate again. A lender may charge a reasonable and customary packaging fee, out-of-pocket costs without markup, and third-party report costs such as the business valuation and any appraisal.
Then there is the broker’s own compensation, and this is where you need to pay attention. Some brokers are paid by the borrower, usually as a success fee on funding. Some are paid by the lender as a referral fee. Some charge an upfront retainer. All of these exist legitimately in the market, and none of them is inherently wrong, but the difference matters to you because it changes the incentives.
The disclosure mechanism is SBA Form 159, the fee disclosure and compensation agreement. Agent compensation on a 7(a) loan is supposed to be disclosed on it, with a limited exception for lender-charged packaging fees up to $2,500. There is also a rule against an agent being compensated by both the borrower and the lender for the same service. If a broker is vague about the form, or tells you it does not apply to them, treat that as information.
The cleanest question to ask is simply this: who signs your check, and what does it say on the 159? You are entitled to know both before you sign anything.
Reading Approval Rate Claims Without Getting Fooled
Almost every broker advertises a high approval or closing rate. Nobody audits these numbers; there is no standard definition, and the denominator is entirely up to the person quoting it. A firm that only accepts pre-screened deals with strong cash flow can honestly claim 95 percent while turning away most of the people who call.
So the number itself tells you very little. What you can do instead:
- Ask how they define it. Approvals divided by applications submitted is a real metric. Approvals divided by files they chose to take is marketing.
- Ask what they decline and why. A specialist can describe, quickly and without hedging, the deals they turn down. Someone who says they can finance anything is telling you they have not seen enough deals.
- Ask about the last one that failed. Not the good story, the bad one. What killed it, at what stage, and what they would do differently.
- Check the lender, not the broker. SBA publishes loan-level detail through its 7(a) and 504 FOIA data, which means you can see which institutions are actually funding acquisitions in your industry and size range rather than relying on anyone’s summary of the market.
That last point is the useful one. Broker performance is largely invisible in public data. Lender performance is not. If the lenders your broker names are not visibly active in change-of-ownership lending in your category, ask why they are the right choice.
Where Acquisition Deals Actually Fall Apart
Most failed acquisition files die for boring reasons that were visible early. The recurring ones:
Equity injection that cannot be documented. The money exists but arrived as an undocumented family transfer, or sat in an account for nine days rather than the required window, or came from a source with a repayment obligation nobody disclosed.
A valuation that comes in below the agreed price. Now somebody has to bridge the difference, and if the purchase agreement has no mechanism for that, you are renegotiating with a seller who feels insulted.
The seller’s role after closing. A seller who stays involved too long, or on the wrong terms, can create eligibility problems. This needs to be structured at the letter of intent stage, not discovered in underwriting.
Working capital left out. Buyers routinely finance the purchase price and forget that the business needs cash to run on day one. Adding it later means re-underwriting.
Financial statements that do not survive contact with a lender. Owner-run businesses often have add-backs that are perfectly reasonable and completely undocumented. If the seller cannot support them, the cash flow the whole deal was priced on shrinks.
Landlord and lease assignment. On a location-dependent business, the lease is a condition of closing, and landlords move at their own pace.
None of these are exotic. A broker who has closed a reasonable number of acquisitions raises every one of them in the first two weeks. That, more than any credential, is the signal you are looking for.
Frequently Asked Questions
Can you use an SBA 7(a) loan to buy an existing business?
Yes. Business acquisition, described in the program as a change of ownership, is one of the standard permitted uses of 7(a) proceeds, and the program will finance goodwill, which most conventional lenders will not. Both the buyer and the business being acquired have to meet eligibility requirements, and the transaction itself has to be structured in a way the SOP permits, which is where most of the complexity sits.
How much do you have to put down to buy a business with a 7(a) loan?
For a complete change of ownership, the minimum equity injection is 10 percent of total project cost. Total project cost includes closing costs, working capital, and fees on top of the purchase price, so the real dollar figure is usually higher than buyers expect. A seller note on full standby for the life of the loan can cover up to half of that requirement, meaning at least 5 percent generally has to be your own verifiable money.
How long does an SBA acquisition loan take to close?
Plan on roughly 45 to 90 days from a complete application to funding for a standard 7(a) loan, and treat the longer end as the realistic case for an acquisition. The variables that stretch it are the business valuation, any real estate appraisal, the quality of the seller’s financial records, and lease assignment. Deals above $500,000 involve more documentation and more steps than smaller ones, so size affects timeline as well.
Do you actually need a broker, or can you go straight to a bank?
You can go straight to a bank, and if you already have a relationship with an institution that is genuinely active in acquisition lending in your industry, that is a perfectly good path. The argument for a broker is lender selection. A single bank gives you one credit box and one answer. Someone who places deals across many lenders knows which ones will look at your industry, your deal size, and your state before you spend six weeks finding out. The value is in the matching and in the file management afterward, not in the paperwork itself.
What to Take Into the First Conversation
If you are early in this process, the most useful thing you can do is stop evaluating brokers on responsiveness and start evaluating them on specificity.
Ask how many change of ownership deals they closed last year and how big those deals were. Ask which lenders they would take yours to and why those lenders and not others. Ask them to build your equity injection in dollars against total project cost. Ask what they do the day a lender declines. Ask who signs their check.
A broker who can answer those five questions in one conversation, without retreating into generalities, is probably worth your deal. One who cannot is going to learn on it, and you are the one holding the contingency date.
