How do you finance buying a business?

What are the sources, ranked?

This ranking is by how often each source sits in a first acquisition, with its main limit as of October 2026.

1. Your own cash. The SBA requires an equity injection of at least 10% of total project costs: price plus working capital, fees and closing costs. For an Initial Acquisition, the lender cannot reduce it. At least half must come from sources other than standby seller notes and small passive investors.
2. SBA 7(a) loan. Up to $5 million per borrower including affiliates. The business portion amortizes over a maximum of 10 years; real estate up to 25 years. Lenders size it at 1.25x historical cash flow coverage for a first acquisition. Total debt cannot exceed the independent appraised value.
3. Seller note. 20.4% of US listings offer seller financing. The median stated note is 30% of the price, at 7% interest over 3 years. In closed deals tracked by the IBBA in Q2 2026, seller financing was under 10% of deal value.
4. Passive investors. Investors who together hold under 20% with no control can fund part of the injection. They generally receive only tax distributions until the SBA loan is repaid.
5. Retirement funds (ROBS). Needs roughly $60,000 or more of rollable pre-tax retirement funds, a C-corp, and you working in the business as an employee.
6. Real estate financing. If the deal includes the property, real estate can amortize up to 25 years. Combined 7(a) and 504 capacity is $10 million.
7. Conventional bank loans and private credit. No SBA rules apply, so structures like earnouts are possible. Terms vary by lender.

How do the sources fit together? A worked example

Assume a $1,500,000 purchase price, $100,000 of working capital and $40,000 of fees and closing costs. The SBA rate is 10%, the maximum for loans over $350,000 with prime at 7%. The fee and working capital figures are illustrative.

Stack 1: SBA loan plus a seller note on full standby

1. Total project costs: $1,500,000 + $100,000 + $40,000 = $1,640,000.
2. Required injection: 10% x $1,640,000 = $164,000.
3. Seller note on full standby: $82,000, the maximum (half of $164,000).
4. Your cash: $164,000 - $82,000 = $82,000.
5. SBA loan: $1,640,000 - $164,000 = $1,476,000.
6. Annual SBA payment over 10 years at 10%: about $234,100.
7. Cash flow needed at 1.25x: $234,100 x 1.25 = about $292,600.

Stack 2: SBA loan plus a regular seller note

1. Your cash: the full $164,000, because a note that pays the seller during the SBA loan does not count toward the injection.
2. Seller note: $150,000 at the median terms of 7% over 3 years. Annual payment: about $55,600.
3. SBA loan: $1,640,000 - $164,000 - $150,000 = $1,326,000. Annual payment: about $210,300.
4. Total debt service: $210,300 + $55,600 = $265,900.
5. Cash flow needed at 1.25x: about $332,300.

Stack 1 halves your cash but asks the seller to wait up to 10 years for any payment. Stack 2 pays the seller sooner but needs about $40,000 more annual cash flow to pass the coverage test. Seller debt not on full standby must be included in coverage at no more than a 10-year amortization. A short note is expensive in coverage terms.

If you are buying your first business

Your purchase is an Initial Acquisition under SOP 50 10 8.1. The rules are the strictest in that category:

• The 10% injection cannot be reduced.
• Coverage is 1.25x, measured on historical or adjusted historical cash flow. Projections do not count.
• A lender-commissioned quality of earnings report is required at a purchase price of $3 million or more.
• Seller earnouts are prohibited in SBA-financed deals.
• Owners must be U.S. citizens or U.S. nationals with a U.S. principal residence, effective March 1, 2026.

Line up the equity before you sign a letter of intent. LOI exclusivity typically runs 30 to 90 days, and SBA deals typically take 60 to 120 days from LOI to close. Raising equity inside that window puts you under time pressure.

If you already own a business

An existing business buying another can be a Business Expansion. The lender may reduce or waive the injection with strong liquidity and positive net worth. Coverage is 1.15x instead of 1.25x. The $5 million 7(a) cap counts affiliates, so your existing SBA debt uses up capacity. Past a few deals, more SBA debt stops being the answer. Holding-company equity, seller rollover and, for a few companies, public stock become the main sources. See How do you fund acquisitions two through ten without more SBA debt?

Where these numbers come from: SBA rules are from SBA SOP 50 10 8.1 as summarized by Beancount and Cantrell Law, and the SBA 7(a) program page. Rates are from NerdWallet (check current prime). Buyer survey data is from BizBuySell. Seller note terms are from BigIdeasDB; deal-value data from the IBBA Market Pulse Q2 2026. ROBS requirements are from Guidant Financial. Timelines are from BizBuySell and BigIdeasDB. Confirm current terms with an SBA lender. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

What interest rate will I pay on an SBA acquisition loan?

As of September 2026, the maximum variable rate for 7(a) loans over $350,000 was prime plus 3%, or 10% with prime at 7%. Lenders can price below the maximum. Check current prime, because rates move.

Can I finance a business purchase without the SBA?

Yes, through conventional bank loans, seller financing or investors. You avoid SBA limits such as the earnout ban. Terms depend on the lender and the seller.

Is a seller note better than an SBA loan?

They usually work together. A seller note is cheaper on rate at a median 7%, but a 3-year term makes the payment heavy. See SBA loan or seller financing: which is better?

What comes next

If your cash is in a retirement account, the next question is whether you can use it: Can I use my 401(k) to buy a business (ROBS)? The buyers who end up with the most valuable companies decide what the business goes into before they buy it, because the entity that owns deal one also has to finance deal two.

Related articles

• How much cash do I need to buy a business?
• What are creative ways to finance buying a business?
• What does buying a business cost beyond the down payment?
• What are the SBA 7(a) rules for buying a business, as of October 2026?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.