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How to Finance Buying an Existing Business (Micro-Acquisition Funding Playbook)

Unlock the secrets to successfully financing the purchase of an existing business with our comprehensive guide! In "How to Finance Buying an Existing Business," we break down essential strategies and funding options tailored for aspiring entrepreneurs.


Whether you're looking to leverage loans, investors, or creative financing solutions, this article equips you with the knowledge to make informed decisions. Don't miss out on the chance to turn your business dreams into reality—read on to discover the best financing pathways!


White storefront with "Buy a Business?" text, "FOR SALE" sign, and stacked books labeled BANK and SBA. "Playbook" in navy text above.

Buying a business is the grown-up version of “steal my job.” Instead of hoping someone hires you, you buy the cash flow and become the person who signs the checks.


But here’s the catch: most first-time buyers don’t fail because they can’t find a deal. They fail because they can’t finance the deal cleanly.


This playbook walks you through the funding stack, the lender logic, and the deal structures that get to “clear to close.” Not vibes. Not guru fog. Real-world mechanics.


Quick note: This is educational info, not legal/tax/financial advice. Talk to qualified pros before you sign your life away.

What counts as a “micro-acquisition”?

Different people draw the line in different places, but in the “Main Street” universe, think:


  • Purchase price: ~$100k to $5M

  • Most common: $300k–$2M

  • Why this range matters: it’s small enough for creative financing, big enough to buy meaningful cash flow.


Your mission is simple: buy a business where the cash flow can pay the debt and still feed you.


The funding stack (the only “stack” that matters)


Most business purchases aren’t funded by one magic loan.

They’re funded by a capital stack:


  1. Senior debt (bank / SBA / asset-based lending)

  2. Seller financing (a seller note)

  3. Buyer equity (cash you bring)

  4. Investor equity (partners, silent investors)

  5. Other tools (ROBS, lines of credit, etc.)


The art is stacking these pieces so:


  • the lender is comfortable,

  • the seller feels respected,

  • and your monthly payment doesn’t turn you into a debt-serf.


Wooden blocks with "DEBT, SELLER NOTE, EQUITY, INVESTORS" form a stack with a yellow arrow pointing up. Text: "Capital Stack" and "REAL DEAL."

Option A: SBA 7(a) acquisition loan (the main character)


For most first-time micro-acquisitions in the U.S., SBA 7(a) is the most common “big-leverage” path because it’s designed to get banks comfortable lending on businesses they’d normally avoid.


Here are the key rules and realities you should know:


SBA 7(a) basics that matter for acquisitions


  • Max loan amount: $5 million.

  • SBA guarantee: typically up to 85% for smaller loans and 75% above $150k (with program-specific exceptions).

  • Minimum SBSS score for 7(a) Small loans: 165 (a common screening threshold).

  • Fees: SBA guarantee fees vary by fiscal year; SBA publishes updated fee notices (FY2026 notice exists).


The 10% equity injection rule (aka “down payment, but make it SBA”)


For a complete change of ownership, SBA commonly requires a minimum 10% equity injection of total project costs.


Total project costs isn’t just purchase price. It can include working capital, closing costs, and due diligence expenses (lender-dependent).


Seller notes can help—but the rules got tighter


Seller financing can count toward the injection only if structured correctly (and SBA guidance has tightened in recent SOP updates).


A common theme in the post–June 1, 2025 SOP environment: a seller note may need to be on “full standby” for the life of the SBA loan to count as equity injection, and it may only cover part of the required injection (often up to half).


Translation: you can’t “seller-note” your way into zero money down like the old days. Lenders want you to bleed a little. It’s their love language.


Earnouts: proceed carefully

Traditional earnouts are often problematic in SBA deals; performance-based structures may need special handling.


Translation: if you want variable purchase price based on future performance, expect friction and structuring constraints.


Option B: Conventional bank loan (great when you already look “bankable”)


If you’ve got:


  • strong credit,

  • industry experience,

  • solid collateral,

  • and a business with clean books…


…a conventional loan can be faster/cheaper than SBA.


But banks are pickier. SBA exists because banks love saying “no” in 17 polite ways.


Option C: Seller financing (the duct tape of Main Street deals)


Seller financing is common in small business acquisitions—often because it’s the difference between “deal” and “no deal.”


Typical ranges vary wildly by industry and deal quality, but you’ll often see seller notes in the 10%–30% range in many transactions.


Some brokers cite that a significant portion of small-business deals include seller financing.


Why sellers do it:

  • Bigger buyer pool

  • Better price

  • Tax planning flexibility

  • Proof you’ll run the business without lighting it on fire


Why buyers love it:

  • Less cash needed

  • Better alignment

  • A built-in “truth serum” (if the seller won’t finance, they might not trust the business either)


Option D: Asset-based lending (ABL) for inventory & receivables-heavy businesses


If the business has real, financeable assets—like:


  • receivables (A/R),

  • inventory,

  • equipment,


…you may be able to borrow against those directly.


ABL shines when cash flow is decent but traditional lenders don’t like the story.


Option E: ROBS (use retirement funds—legally, but not casually)


A ROBS (“Rollover as Business Start-up”) uses retirement funds to invest in a business without triggering early withdrawal penalties—if structured properly.


The IRS explicitly describes ROBS as not inherently abusive, but “questionable” in many cases and subject to compliance scrutiny.


Translation: this can work, but it’s not a cheat code. Mess it up and you can create a tax-flavored crater.


A vault door emerges from snow, with a city skyline in the background. Text reads "ROLLOVER AS BUSINESS START-UP." Cool tones dominate.

The lender’s brain: what they actually underwrite


Lenders don’t finance “potential.” They finance repayment.


They’ll typically focus on:


  • Historical cash flow (tax returns matter more than your spreadsheet poetry)

  • Debt Service Coverage Ratio (DSCR): can the business pay the loan and still breathe?

  • Customer concentration: one client = one grenade pin

  • Owner dependency: if the seller is the business, you’re buying a personality, not an asset

  • Clean financials: consistent P&L, reconciled statements, believable add-backs


Pro tip: the fastest way to get denied is “creative accounting” + “trust me bro.”


Micro-acquisition funding playbook (step-by-step)


Step 1: Pick a business model lenders already understand

Boring is bankable.

Examples lenders often like:


  • home services with recurring demand (HVAC, plumbing, pest control)

  • B2B services with contracts

  • niche maintenance/repair

  • boring professional services with stable clients


Step 2: Build your “buyer package” before you shop

Have this ready:


  • personal financial statement

  • resume + relevant experience narrative

  • credit context (explain weird stuff once, up front)

  • target deal size + industry thesis

  • proof of liquidity (even if it’s not all deployable)


You’re not just buying a business—you’re selling you as the risk.


Step 3: Structure the LOI like a closer

Your LOI should include:


  • price + terms (headline)

  • seller financing ask (amount, rate, term)

  • training/transition period

  • working capital target

  • financing contingency + due diligence window


Step 4: Pre-qualify with lenders early

Talk to SBA-heavy banks (and/or loan brokers) before you’re emotionally attached to a deal.


Why? Because the lender will tell you what they’ll hate:


  • messy books

  • weak margin

  • shrinking revenue

  • sketchy add-backs

  • customer concentration


Step 5: Build the capital stack (two practical templates)


Template 1: “Classic SBA” (common for first timers)

  • 90% SBA/bank loan

  • 10% injection (cash + possibly standby seller note per rules)


Template 2: “SBA + seller note + investor” (when cash is tight)

  • senior loan (SBA/bank)

  • partial seller note (structured to satisfy lender/SBA)

  • outside equity (silent partner) to cover injection + working capital buffer


Goal: get enough liquidity so you’re not running payroll on prayers

.

Step 6: Due diligence like a suspicious scientist

Minimum diligence:


  • tax returns vs financials (do they match reality?)

  • bank statements (verify deposits)

  • customer list + churn

  • vendor contracts + pricing risk

  • employee roster + wage pressures

  • any licensing/regulatory issues

  • add-backs (prove each one)


If you can’t verify it, you can’t finance it.


Step 7: Close, then run the “first 100 days” like a takeover

Your first 100 days should be:


  • stabilize operations

  • keep customers

  • retain key employees

  • tighten reporting (weekly cash flow)

  • build a pipeline so growth isn’t accidental


Debt hates surprises. So do you.


Red flags that kill financing (or worse: trap you)

  • Revenue declining for 6–12 months with no clear reason

  • “Cash business” with weak documentation

  • Seller claims massive add-backs but can’t prove them

  • The seller is the top salesperson and the ops brain

  • Customer concentration >25–30% in one account (industry-dependent)

  • Key equipment is leased or near end-of-life with no plan


FAQ (because your lender will ask these anyway)


Can I buy a business with little money down?

Sometimes, but the stricter reality is: lenders want you to contribute real equity. SBA change-of-ownership deals commonly require 10% injection, and seller notes only help if structured under current rules.

What’s the max SBA 7(a) loan amount?

$5 million.

Does SBA have minimum credit score requirements?

For 7(a) Small loans, SBA references a minimum SBSS score of 165 as the current floor (subject to change).

Are SBA fees fixed?

No—SBA publishes fee schedules by fiscal year (FY2025 and FY2026 notices exist).


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Sources / Credits (APA 7th Edition)


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