What if the best buyer for your business can’t pay all cash?
For most small businesses listed between, say, $500,000 to $5 million, that’s the reality. Not all buyers have millions sitting in their checking account, ready to wire on closing day.
“Think about the percentage of people who buy a car all cash or a house all cash, and then how much bigger a business can be than either of those,” said Kara Gibson Brzytwa, owner and managing principal of Exit Equity. “So [all cash] is very uncommon, which leaves financing a sale.”
One of the most common financing options? SBA loans.
SBA-backed buyers who use government-guaranteed loans to finance acquisitions. Understanding how this financing works could massively expand your buyer pool — and even maximize your sale price.
What’s an SBA-backed buyer?
Individuals and businesses have several financing options when it comes to acquiring a company — including an SBA 7(a) loan.
The 7(a) loan program is the U.S. Small Business Administration’s main loan program, providing financial assistance to small businesses. Banks issue the funds, while the SBA guarantees a portion of the loan.
“This [program] was a way to induce banks to make loans to small business owners and people who want to be small business owners,” Brzytwa said. “If the SBA didn’t exist, a lot of these loans probably wouldn’t happen.”
Because the terms of many acquisitions are private, there’s no public database that quantifies SBA-backed deals. But Gwen Sylvester, a broker with the Cornerstone Team at Website Closers since October 2022, estimated around 75% of the 20 deals she’s closed in the past three years involved SBA loans.
Brzytwa operates under the assumption that if her sellers are listing for $5 million or under, SBA financing will be part of the deal. (Smaller 6-figure sales might be an exception.)
What types of businesses can be purchased with an SBA loan?
Wondering if your business could be purchased by an SBA-backed buyer?
You’ll want to prequalify your business first (more on that below), but perhaps the biggest asterisk is this: SBA loans max out at $5 million. That means if you’re selling for more, you’ll need a buyer who can qualify for the maximum loan amount and has another form of financing available.
Mihir Patel, vice president and national SBA business development officer at American Momentum Bank, outlined a few other criteria that make businesses a good fit for SBA-backed buyers, including:
- Consistent cash flow and profitability
- Verifiable tax returns and profitability
- Predictable revenue (think: industries like professional services, distribution, health care or B2B services)
“Highly volatile businesses or those with significant customer concentration can still qualify but often face more scrutiny,” Patel added.
Why sellers might consider an SBA-backed buyer
The biggest benefit to being open to SBA-backed buyers is this: you can significantly expand your buyer pool.
Sylvester compared it to buying a house: If you list your home for $1 million and only want a cash buyer, you won’t get nearly as many offers, since you eliminate anyone who wants or needs to use a mortgage.
“It’s all about supply and demand, so if you say a business is SBA qualified, you will have so many more buyers interested in it,” she said. “You have more demand, so you’re able to ask a higher price.”
While the company’s performance is what drives its valuation, Sylvester said that when she can get a business prequalified for SBA, she typically uses a higher sale multiple.
Plus, because the government guarantees up to 85% of these loans, they’re less risky for banks, which can mean more advantageous terms for business buyers — which can translate to a better deal for the seller, Brzytwa noted.
And, despite a common misconception that sellers always have to hold a seller note (a loan provided by the seller of the business) or they’ll get less cash at closing, sellers often get most — if not all — of the purchase price at closing, Patel noted.
“In reality, most SBA deals provide the seller with a substantial cash payout, often up to 90% or more of the purchase price at closing,” he explained.
Additional benefits can include:
- Less negotiating. SBA loans have a standardized deal structure and requirements, so there’s often less back and forth on terms, though some include back-and-forth on seller financing, add-backs and other details.
- Faster closing. Although upfront diligence can take more time, once a buyer’s SBA loan is approved, funding can come through within a few days, though it depends in part on how long the buyer takes to provide the finalized agreement and other documents.
- A straightforward transition. SBA deals usually include a short training period for the new owner — the SBA wants to know the business is set up for success — but you’re not expected to stay on longer term like you might with a private equity exit. Sellers are prohibited from staying on in any capacity for more than 12 months in a complete change of ownership.
Like any business decision, going with an SBA-backed buyer has its gives and takes. Ultimately, the route you take depends on your goals for selling.
How selling your business to an SBA-backed buyer works
Here’s one downside to this approach: selling your business to an SBA-backed buyer generally takes longer than selling to an all-cash buyer.
“While SBA loans do have more paperwork and lender diligence, a well-prepared buyer and lender can often close in a similar timeframe to other financing, around 60 to 90 days,” Patel said.
Brzytwa agreed but cautioned timelines can vary based on the bank, buyer structure and even time of year. She’s seen deals completed in 60 to 90 days, while others have taken over 120 days.
Patel outlined a few of the additional steps a seller can expect:
- A detailed review of tax returns, profit and loss statements, and sometimes bank statements.
- Requests for additional documentation, like customer concentration or equipment lists.
- A formal valuation to confirm the price.
- A purchase agreement that meets SBA requirements, including a seller non-compete.
“Overall, it’s more structured, but with a good lender and broker team, the process can be smooth,” Patel said.
The importance of getting your business prequalified
Both the business being sold and the buyer can prequalify for SBA financing. So getting your business prequalified ahead of the sale can save time when you go to market.
Even if you aren’t targeting SBA-backed buyers, prequalification is beneficial in expanding your buyer pool and putting upward pressure on your multiple.
To get prequalified, work with your M&A advisor, who will prepare a confidential business review (CBR) or confidential information memorandum (CIM), alongside your financials. Brzytwa said once she submits these to a bank, she typically hears back within a day or two.
If you aren’t working with a broker, see if your bank has an SBA branch to help you get prequalified.
New SBA rules sellers should know
The SBA typically releases minor updates and clarification around the 7(a) loan program each year. But in April 2025, it released a larger overhaul, which went into effect June 1, 2025.
Overall, these changes make SBA-financed deals more difficult for borrowers with stricter credit requirements, more financial documentation and more fees (like guarantee fees).
Two changes that sellers should know:
- Buyers must now put down at least 10% when using an SBA loan to buy a business. The seller can only provide half of the required equity in a seller take-back loan, and the seller note must be for the entire length – or have the same maturity — of the SBA loan, with no payments of principal or interest.
- If you plan to hang onto any percentage of ownership after the sale — no matter how small — you are required to personally guarantee the SBA loan for at least two years, or until the loan has been paid for at least 12 consecutive months, whichever is later.
Overall, these changes may result in fewer qualified buyers or longer timelines to close.
Founder spotlight: Selling to SBA-backed buyer
Alex Goldberg, now founder of Evergold, sold his portfolio of five websites in March 2024 to a small family office that used an SBA loan to finance the acquisition. (If you missed it, you can get the deal details here.)
Ahead of the sale, Goldberg worked with his brokerage and trusted SBA lender to build a sales packet and prequalify the business. This process included providing three years of tax returns that showed consistent net income.
“Relying on all-cash buyers felt very limiting,” he said. “Prequalification by no means guarantees that the business will be underwritten, but it makes your listing more attractive.”
Within three weeks of listing, Goldberg received 10 letters of intent (LOI), each of which included details on how the buyer planned to finance the deal.
“Because third-party financing poses closing risk, I initially chose an all-cash buyer with proof of funds,” Goldberg said. “But when he pulled his offer, I reached out to my second highest bidder despite them needing an SBA loan.”
Reflecting on the process, Goldberg felt like the underwriting process was a “black box,” so he relied on his broker’s word that the deal would close. The process took about four months to complete — from accepting the LOI to getting the funds in his account. He ultimately sold for multiple 7 figures at 3x EBITDA.
Tips for founders selling to SBA-backed buyers
- Get your financials in order. “Clean, verifiable books and tax returns are what make SBA deals happen,” Patel said. You’ll need three years of tax returns plus P&Ls and balance sheets. These must be aligned and reflect the value of your business. It’s also best to avoid filing for a tax extension so lenders don’t rely on older tax returns that could under-represent your company’s value.
- Respond to requests promptly. “As the process drags on, you’ll be asked to furnish updated financial statements, so make sure you, your partners, and/or your CPA are ready,” Goldberg said. “Every day you delay likely amplifies into three on their end.”
- Work with a broker or advisor. Brokers have experience selling to SBA-backed buyers, so they can help guide you through the process — from prequalifying to closing. “A knowledgeable broker will help you cut through, instead of just going blindly, through the jungle and figuring it out your way,” Kara said.
The bottom line about selling to an SBA-backed buyer
Although an all-cash buyer is the gold standard when selling your business, it’s not always a reality.
Selling to an SBA-backed buyer will likely require more paperwork and entail a longer timeline, but it can widen your buyer pool, increase your sale price and create a smooth path to your next chapter.
