You signed an LOI on a landscaping company doing $420K in SDE. You have already run the salary replacement math and the numbers work. The seller accepted. Your attorney is drafting the purchase agreement. Now you need to finance $1.35 million, and you have about 75 days before the seller starts taking calls from other buyers.
SBA 7(a) is the most common path for first-time acquisition financing. In FY2025, the SBA backed over 70,000 loans totaling $31 billion, with acquisition loans averaging roughly $1.19 million. The program exists specifically to make deals like this possible: proven cash-flowing businesses purchased by qualified buyers who cannot or prefer not to pay all cash.
The process has six stages. Each has its own timeline, documentation requirements, and failure modes. Most of the frustration first-time buyers experience comes from not knowing what happens at each stage, or what the lender needs before they can move to the next one.
Stage 1: Pre-qualification
Timeline: 1 to 2 weeks
Pre-qualification is a screening conversation. You are not applying for a loan yet. You are giving a lender enough information to determine whether this deal is worth underwriting.
At this stage, the lender needs three things from you: a personal financial statement, your most recent two years of tax returns, and a summary of the deal (listing details, asking price, SDE, and the proposed structure). They will also pull your credit.
What the lender is checking: Can you meet the equity injection? Is your credit above their threshold (680 minimum at most lenders, 700+ at Preferred Lenders)? Does the deal structure make basic economic sense at a 10-year repayment term?
Pre-qualification is not approval. It is a lender telling you they are willing to look at the full package. Do not confuse the two.
Start talking to lenders before you sign the LOI. Pre-qualification conversations are free and non-binding. If your deal has a financing contingency with a 75-day window, burning the first two weeks finding a lender is time you cannot afford to lose.
Stage 2: Lender selection
Timeline: Concurrent with pre-qualification
Not all SBA lenders are the same, and the difference matters more than most first-time buyers realize.
There are roughly 1,800 active SBA 7(a) lenders. Of those, about 400 hold Preferred Lender Program (PLP) status. PLP lenders have delegated authority from the SBA to approve loans without sending the package to the SBA for review. That eliminates 1 to 3 weeks from the timeline.
Beyond PLP status, the important variable is acquisition experience. A lender who processes 200 acquisition loans per year will package your deal differently than a community bank that does three. They know what underwriters flag. They format the loan package to minimize back-and-forth. They have seen the stall points and built their process to avoid them.
SBA 7(a) rates are based on the prime rate plus a spread capped by the SBA. As of early 2026, most acquisition loans price at prime + 2.75%, currently around 10.25%. The rate difference between lenders is small. The process difference is large.
Talk to at least two lenders. Three is better. Ask each one how many acquisition loans they closed last year and what their average time from submission to funding is. The answers will tell you what you need to know.
Stage 3: Loan packaging
Timeline: 2 to 4 weeks
This is where most delays originate. Loan packaging is the process of assembling every document the underwriter will need to approve the deal. Missing a single item can stall the review by a week or more.
The documentation falls into three categories:
About you (the buyer)
- SBA Form 1919 (Borrower Information Form)
- Personal financial statement
- Three years of personal tax returns
- Resume or CV
- Proof of equity injection (bank statements, brokerage statements, gift letters if applicable)
- Business plan with 3-year financial projections
About the business (the target)
- Three years of business tax returns
- Three years of profit and loss statements (monthly breakout preferred)
- Year-to-date interim financials
- Accounts receivable and payable aging
- Customer concentration analysis
- Equipment list with approximate values
- Current lease agreements
About the deal
- Signed Letter of Intent
- Purchase agreement (draft or final)
- Business valuation or broker opinion of value
- Seller's discretionary earnings calculation with add-back detail
- Seller note terms (if applicable)
- Transition plan
The business plan is the document most first-time buyers underestimate. Lenders do not want a 40-page strategic vision document. They want to see that you understand the existing operations, that your financial projections are grounded in the business's actual performance, and that your assumptions about growth (or lack thereof) are reasonable. A 10- to 15-page plan with detailed financial projections and an honest assessment of risks is more useful than a polished deck.
Create a shared folder with your lender and accountant on day one. Upload everything as it becomes available. Respond to every document request within 24 hours. The single biggest cause of delay in SBA acquisitions is not underwriting. It is missing paperwork.
Stage 4: Underwriting
Timeline: 2 to 4 weeks
Once the package is complete, the lender's underwriting team reviews everything. For PLP lenders, this is an internal process. For non-PLP lenders, the package goes to the SBA's Loan Processing Center after internal review, adding another 1 to 3 weeks.
Underwriters are evaluating four things:
Repayment ability. Can the business service the debt? Lenders typically want a debt service coverage ratio (DSCR) of at least 1.25x, meaning the business generates $1.25 in cash flow for every $1.00 in annual debt payments. Some lenders require 1.5x for first-time buyers.
Equity injection. Has the buyer contributed at least 10% of the total project cost from verified sources? The SBA is strict about source documentation. Money that appeared in your account 60 days ago without a clear paper trail will trigger questions.
Collateral. SBA loans require the lender to collateralize to the maximum extent possible. For acquisitions, this includes the business assets, any real estate involved, and a lien on the buyer's personal residence if the business assets do not fully collateralize the loan. The SBA does not decline loans solely for insufficient collateral, but the collateral position affects the lender's risk assessment.
Management capability. Does the buyer have relevant experience or a credible plan for the transition period? This is where your resume and business plan matter. Direct industry experience is not required, but you need to demonstrate that you understand what running this business involves and have a plan for the first 12 months.
During underwriting, expect questions. The underwriter may ask for clarification on add-backs in the SDE calculation — this is where a solid quality of earnings report pays for itself — additional documentation on large or unusual transactions, or an updated appraisal. Each question-and-response cycle can add 3 to 5 business days. Prepare your accountant and your seller's broker to respond quickly.
Stage 5: Conditional commitment
Timeline: 1 to 2 weeks to clear conditions
If underwriting approves the deal, the lender issues a conditional commitment letter. This is their formal agreement to fund the loan, subject to a list of conditions that must be met before closing.
Common conditions include:
- Life insurance policy on the buyer naming the lender as beneficiary
- Hazard insurance on business assets
- Signed standby agreement on any seller note
- Final executed purchase agreement
- Landlord consent to assignment of lease (or a new lease)
- Formation documents for the acquisition entity (typically an LLC or S-corp)
- IRS tax transcript verification
- Environmental review (if real estate is included)
The conditional commitment is good news, but it is not the finish line. Clearing conditions requires coordination between you, the seller, your attorneys, the lender, and sometimes the landlord. The lease assignment alone can take a week if the landlord is slow to respond.
Stage 6: Closing
Timeline: 1 to 2 weeks after conditions are cleared
Once all conditions are satisfied, the lender prepares the loan documents and schedules the closing. You will sign the promissory note, the personal guarantee (SBA Form 148), and a stack of ancillary documents. The seller signs their portion. Funds are wired, and the business changes hands.
Plan for the closing to take a full day. There are typically 50 to 80 pages of documents to execute. Your attorney should review the loan documents before closing day, not at the table.
Non-PLP lenders add 1-3 weeks for SBA review. Deals with real estate appraisals or complex seller note structures often push toward the longer end. Budget 90 days to be safe.
The equity injection: where most confusion lives
The SBA requires buyers to inject at least 10% of the total project cost as equity. The total project cost is not just the purchase price. It includes closing costs, working capital, and any other expenses financed through the loan.
On a $1.5 million acquisition with $50,000 in closing costs and $30,000 in working capital, the total project cost is $1.58 million. Your minimum equity injection is $158,000.
Where that money can come from matters as much as the amount. The SBA accepts:
- Cash savings. The most straightforward source. Must be documented with bank statements showing a clear trail.
- Brokerage account liquidations. Sell securities, transfer to checking, document the chain.
- Gift funds. Allowed with a signed gift letter confirming no repayment obligation. The donor's bank statements may be required.
- 401(k) via ROBS. Rollovers as Business Startups allow you to use retirement funds without early withdrawal penalties. The mechanics are complex and require a specialized provider. Note that ROBS moves money out of creditor-protected retirement accounts into exposed business equity, which changes your risk profile on the personal guarantee.
- Seller note on full standby. A seller note can count toward up to 50% of the required equity injection, but only if it is on full standby for the life of the SBA loan. No principal or interest payments until the SBA loan is fully repaid. The note must be subordinated to the SBA loan and have a maturity at least as long as the SBA loan term.
Under SOP 50 10 8, which took effect in June 2025, the SBA tightened source verification requirements. Lenders now must document the trail of every dollar in the equity injection. Money that materialized in your account without explanation will be questioned. If you are planning to use funds from multiple sources, start organizing the documentation early.
Seller notes: structure matters
Seller notes are common in SBA acquisitions. They serve two purposes: they bridge a gap between what the buyer can inject and what the SBA requires, and they keep the seller financially invested in a smooth transition.
There are two types of seller notes in SBA deals, and confusing them is a common mistake.
Standby seller note (counts toward equity injection). No payments of any kind until the SBA loan is fully repaid. Interest may accrue and be added to the principal. The note must be subordinated to the SBA loan. Maturity must be at least as long as the SBA loan (typically 10 years). This note counts toward up to 50% of the required 10% equity injection.
Non-standby seller note (does not count toward equity injection). Regular payments begin after closing. This is essentially a second lien on the business. The SBA allows this, but the payments are included in the debt service coverage calculation. A $200,000 seller note at 6% over 5 years adds roughly $3,870/month in debt service. Your DSCR must still clear 1.25x with this payment included.
The distinction matters for deal structure. A 10% equity injection on a $1.5M deal is $150,000. If you have $100,000 in cash and the seller provides a $75,000 standby note, you satisfy the injection requirement ($100,000 cash + $75,000 standby note = $175,000, with the standby note comprising less than 50% of the total injection). But if the seller's note requires monthly payments, those $75,000 only reduce the SBA loan amount. They do not count toward your injection.
Where deals stall
Most SBA acquisition timelines slip not because of a single large problem but because of accumulated small ones. After seeing hundreds of these deals close (or fail to), a few patterns stand out.
Missing documents. The single most common delay. The seller's accountant takes two weeks to produce monthly P&Ls. The buyer forgets to include page 2 of their tax return. The landlord does not respond to the lease assignment request. Each gap adds 3 to 7 days.
Equity source issues. The lender asks where the $40,000 deposit came from, and the buyer cannot produce a clean paper trail. Maybe it was a gift, maybe a stock sale, maybe a transfer from a joint account. Without documentation, the lender cannot count it. This is fixable but time-consuming.
SDE disputes. The underwriter disagrees with one or more of the seller's add-backs. The seller claims $60,000 in personal expenses run through the business, but the documentation is thin. This can reduce the validated SDE, which changes the debt service coverage ratio, which can kill the deal or require renegotiation of the purchase price.
Appraisal gaps. If the deal includes real estate, the lender orders an independent appraisal. If it comes in below the purchase price, you have a gap to fill. Appraisals take 2 to 3 weeks and add another 2 to 5 business days for lender review. Build this into your timeline from the start.
Seller patience. This is the one that kills the most deals. The seller has been running this business for 25 years. They accepted your LOI expecting a 60-day close. You are now on day 70, waiting for the landlord to sign a lease consent form, and the seller is fielding calls from backup buyers. Communicate proactively with the seller throughout the process. Silence breeds doubt, and doubt breeds backup offers.
What you can control
The SBA process is not fast. It is not designed to be. It is a government-backed lending program processing billions of dollars through thousands of lenders, with standardized procedures that exist to manage risk across a very large portfolio.
You cannot make it move faster than it moves. But you can stop it from moving slower than it should.
Get pre-qualified before you sign the LOI. Choose a PLP lender with high acquisition volume. Build the document package in parallel with your due diligence, not after it. Respond to every lender request within 24 hours. Keep the seller informed every week, even if the update is just that everything is on track.
The buyers who close on time are not the ones who found some shortcut through the SBA process. They are the ones who understood what was coming at each stage and had everything ready before the lender asked for it.