How to finance a business acquisition without financing the seller's story

The capital stack is the list of who pays what at closing and who gets paid back first. In a typical main-street purchase it has 3 layers: the buyer's own cash, a senior loan from a bank or an SBA lender, and a note the seller carries for part of the price. Each layer has a different appetite for risk and a different claim on the business if things go wrong.

Write it as a sources-and-uses schedule before you negotiate price. Sources are cash, senior debt, and the seller note. Uses are the purchase price, working capital, closing costs, lender fees, and any equipment or repairs the business needs on day 1. A price that only works when a use is left off the schedule is not a price the business can carry.

A 7(a) loan is made by a participating lender and partly guaranteed by the U.S. Small Business Administration. The buyer applies to the lender, not to SBA. SBA lists complete and partial changes of ownership among the eligible uses of proceeds, sets a program maximum of $5 million, and requires that the business be an operating for-profit business in the United States that qualifies as small and cannot get the same credit on reasonable terms elsewhere.

Lenders then apply their own credit policy on top of the program rules, which is why two lenders can look at the same file and give different answers. Read the SBA 7(a) requirements for buying a business for the eligibility screen, then the cluster pages under this guide for the equity injection, the personal guaranty, and the affiliation rules.

Seller financing is a loan from the seller to the buyer for part of the price, written as a promissory note with its own rate, term, payment schedule, and security. It lowers the cash the buyer needs at closing and keeps the seller interested in the handover. It is not proof the business is sound: sellers carry notes for tax timing, for price, and sometimes because nobody would pay the whole amount in cash.

When a senior lender is involved the note is usually subordinated, and under the SBA program a note on full standby can count toward the buyer's required contribution. The seller financing guide covers the terms that belong in the note, and the standby note page covers what standby means and why it has to be agreed in the letter of intent.

Conventional bank loans, which want more equity and more collateral than the SBA program and give a faster, simpler close in return. Community development financial institutions, which are Treasury-certified private lenders with a mission to lend where banks decline, described on the CDFI page. Retirement funds through a rollover structure, home equity, and investors who take a share of the business in exchange for cash.

Cash is also a source. One of the 3 businesses behind this site was bought with cash and one with a 7(a) loan, and the difference in the first year was not the interest. It was the lender's covenants, the guaranty, and the reporting, which the cash purchase never had and the financed purchase never escaped.

By dividing the cash the business produces, after a realistic owner salary, by the payments on all of its debt. That ratio is the debt service coverage ratio, and every lender has a floor for it. A ratio near 1.0 means every dollar of cash flow goes to the lender. A business that only clears the floor in its best year, with every add-back accepted, has not cleared it.

Run the debt coverage check with your own owner salary and the seller's numbers rebuilt, not accepted. The SDE guide explains why the seller's earnings figure and the one a lender underwrites are rarely the same number.

In fiscal year 2025, SBA's activity data reports 6,627 7(a) approvals classified as change of ownership, worth $8B, with an average approval of $1,163,328. In fiscal 2021 the same segment was 5,568 approvals and $6B. These are approvals reported by lenders, not closed purchases, and they say nothing about the businesses bought with cash or seller financing alone.

The series from fiscal 2021 onward, the method, and the source workbook are in the SBA business acquisition lending report, rebuilt from the agency data every quarter.

SBA publishes its loan origination rules as SOP 50 10. The agency lists version 8 as effective June 1, 2025 and version 8.1 as effective October 1, 2026. A loan that receives its SBA number on either side of that date can be underwritten under a different rule set, and the equity, seller note, and coverage rules are the ones most likely to move.

Every program figure on this site carries the version it was checked against and the date the check expires. Ask the lender, in writing, which version governs your application before you rely on any of them.