Need Financing to Buy a Business? Check SBA Acquisition Readiness Before You Make an Offer

Searching for financing to buy a business is different from looking for general working capital. A serious acquisition funding request needs to show that the transaction, the operating business and the borrower can support repayment.

Can SBA Financing Be Used When Buying a Business?

SBA 7(a) financing can be relevant to qualified U.S. business acquisitions. Typical eligibility factors include operating as a for-profit U.S. business, meeting applicable SBA standards, demonstrating an ability to repay and providing a reasonable owner equity investment. Personal credit is also important, with approximately 680 to 700 or higher commonly associated with stronger SBA borrower profiles.

Owners with 20% or more ownership generally provide a personal guarantee. Depending on the lender and transaction, collateral and additional documentation may also be required.

What Will a Lender Want to Know Before Financing an Acquisition?

Buyers should be ready to explain the purchase price, requested financing amount, owner contribution and intended use of funds. Lenders may also evaluate business revenue, cash flow, existing debt, industry risk and whether the acquired company appears capable of supporting the proposed financing.

A lender-ready profile should also include the buyer’s current Experian FICO score, business entity information, ownership percentage, annual revenue, business banking relationship and details of open business credit cards, lines of credit and loans.

Should You Seek Funding Before Making an Acquisition Offer?

Understanding your financing position before becoming deeply committed to a transaction can help identify potential funding gaps earlier. It also allows buyers to determine whether an SBA structure, another business loan or a different capital strategy may be more realistic.

If you are actively evaluating a business acquisition and expect to need financing, connect with EIN Business Funding to explore potential funding options based on your borrower and transaction profile.

FAQs

What credit score is commonly associated with SBA acquisition financing?
Approximately 680 to 700 or higher is commonly associated with stronger SBA borrower profiles, although individual lender requirements vary.

Do buyers usually need to invest their own money in an acquisition?
SBA financing generally expects a reasonable owner equity investment, with the actual amount depending on the transaction and lender.

What should I prepare before seeking acquisition financing?
Prepare the purchase details, requested financing amount, owner contribution, credit profile, business financial information, existing debt and a clear explanation of how the funds will be used.