Quick Answer: An SBA 7(a) loan is the most common way to finance buying a small business in the United States, for deals up to $5 million. It can fund up to about 90 percent of the purchase, with the buyer providing at least a 10 percent equity injection. Since mid-2025, at least 5 percent of that must be the buyer's own cash, and the business must be owned by U.S. citizens.

For buyers acquiring a business in the United States, the SBA 7(a) loan is the most widely used financing tool, because the government guarantee behind it lets lenders approve acquisitions they might otherwise decline. The program is powerful, but the rules changed meaningfully in 2025 and again in 2026, and a buyer who understands the current structure has a real advantage. This guide explains how SBA 7(a) acquisition financing works today, what a buyer needs to bring to the table, who qualifies, and what makes a business eligible.

What Is an SBA 7(a) Loan and How Does It Work for Acquisitions?

The SBA 7(a) loan is a program of the U.S. Small Business Administration. The loan is made by a bank or an approved SBA lender, and the SBA guarantees a large share of it, which reduces the lender's risk and makes acquisition lending far more accessible. For a buyer, it is often the difference between a deal that can be financed and one that cannot.

An SBA 7(a) loan can finance up to roughly 90 percent of the total project cost for deals up to $5 million. Repayment terms typically run 10 years for a business-only acquisition covering goodwill, equipment, and working capital, and can extend to 25 years when commercial real estate is part of the purchase. Interest rates are negotiated with the lender and have recently sat in the range of 9 to 10 percent.

What Is a Seller Note?

Because seller notes come up throughout SBA acquisitions, it helps to define the term plainly. A seller note, also called seller financing or a seller carryback, is an arrangement where the seller agrees to finance part of the purchase price rather than the buyer paying the full amount at closing. The buyer repays the seller over time, usually with interest, on agreed terms. It is a common feature of small business deals, and as explained below, it can play a specific role in meeting the SBA's equity requirement.

How Much Does a Buyer Need to Put Down?

The SBA requires at least a 10 percent equity injection on an acquisition. What changed in mid-2025 is how that injection can be sourced. Under the current rules, at least 5 percent of the total project must come from the buyer's own cash, and a seller note on full standby can cover no more than the remaining 5 percent, up to half of the required injection.

In practical terms, the smallest cash contribution a buyer can now make is 5 percent, paired with a 5 percent seller note on full standby. Before mid-2025, a seller note could cover the entire injection, which allowed deals with no buyer cash at all. That is no longer permitted. The SBA also scrutinizes the source of the buyer's cash: personal savings, documented retirement rollovers, home equity, family gifts, and investor equity can qualify, while credit cards and undocumented borrowed funds do not.

How Do Seller Notes Work Under the Current SBA Rules?

When a seller note is used to help meet the equity injection, the SBA applies strict conditions. To count toward the injection, the note must be on full standby for the entire term of the SBA loan, meaning the seller receives no principal or interest payments during that period, and it may not exceed 50 percent of the required injection.

A seller can still provide additional financing above the injection requirement on more normal terms, which helps bridge any remaining gap between the buyer's cash, the SBA loan, and the purchase price. One more change to note: a seller who retains 10 percent or more equity in the business after the sale is now generally required to guarantee the loan for a period after closing. Both buyer and seller benefit from understanding these terms before they negotiate.

What Does a Business Need to Qualify?

The target business has to support the debt. Lenders look for a debt service coverage ratio of at least 1.25, meaning the business generates at least $1.25 of cash flow for every $1.00 of loan payment, and stronger files show more. The business's tax returns must support the earnings shown in its financial statements, because a lender cannot lend against profit it cannot verify. SBA acquisition loans also generally require an asset purchase rather than a share purchase, with limited exceptions.

Who Qualifies for an SBA Loan, and Can a Canadian Buyer Use One?

On the buyer's side, lenders typically expect relevant management or industry experience, a solid personal credit profile, and personal guarantees from anyone owning 20 percent or more of the acquired business.

The most important eligibility rule, and the one most often misunderstood, concerns citizenship. As of a change effective March 1, 2026, essentially 100 percent of the direct and indirect owners of the business must be U.S. citizens or U.S. nationals whose principal residence is in the United States. This tightened the rules further than before: lawful permanent residents, commonly called green card holders, previously could qualify but no longer do. A narrow exception allows up to 5 percent aggregate ownership by certain non-qualifying individuals, but it does not permit a foreign buyer to own or control the business.

For a Canadian buyer, the practical answer is clear. A Canadian citizen cannot use an SBA 7(a) loan to acquire a business in the United States, and under the 2026 rules, holding a green card no longer changes that. A Canadian pursuing a U.S. acquisition would need to look to other financing, such as conventional bank lending, private capital, or seller financing, rather than the SBA program. Any buyer weighing cross-border ownership should confirm current eligibility with an SBA-approved lender before relying on it.

Being a Prepared Buyer

The buyers who win good businesses are the ones who arrive ready: prequalified, clear on their financing structure, and credible to a seller. Preparation also earns access to better opportunities. Heirly connects verified, prepared buyers with established businesses through a private, confidential process rather than a public listing, and financing readiness is exactly what makes a buyer stand out to a seller.

Frequently Asked Questions

Can I buy a business with an SBA loan?

Yes, if the buyer qualifies. The SBA 7(a) loan is the most common way to finance buying a small business in the United States, for deals up to $5 million. It can fund up to about 90 percent of the purchase, with the buyer providing at least a 10 percent equity injection, of which at least 5 percent must be the buyer's own cash under the rules in effect since mid-2025.

What is a seller note?

A seller note, also called seller financing or a seller carryback, is when the seller agrees to finance part of the purchase price instead of the buyer paying it all at closing. The buyer repays the seller over time, usually with interest. In an SBA deal, a seller note on full standby can count toward the buyer's required equity injection, up to half of it.

Can a Canadian buy a U.S. business with an SBA loan?

No. As of the rules effective March 1, 2026, essentially all owners of the business must be U.S. citizens or U.S. nationals residing in the United States. Green card holders no longer qualify either. A Canadian buyer pursuing a U.S. acquisition would need conventional, private, or seller financing instead of the SBA program.

How much do I need to put down for an SBA acquisition loan?

At least 10 percent of the project. Since mid-2025, a minimum of 5 percent must be the buyer's own documented cash, and a seller note on full standby can cover up to the remaining 5 percent. Zero-cash acquisitions are no longer allowed.

What kind of business qualifies for SBA acquisition financing?

A business with verifiable financials and enough cash flow to comfortably cover the new loan payment, generally shown by a debt service coverage ratio of at least 1.25. SBA acquisition loans usually require an asset purchase, and lenders look for a buyer with relevant experience and solid credit.

Financing Readiness Opens Doors

Understanding the financing is what separates buyers who close from buyers who stall. Once the structure is clear, the next step is finding the right business. Heirly connects verified buyers with established businesses through a private, confidential match rather than a public listing. Prepared buyers can

For related reading, see How to Finance Buying a Business in Canada and How to Buy a Business.