Overview 

SBA financing is the most common form of funding for owner-operators pursuing  small business acquisitions. This government-backed program offers several  advantages to buyers, including a lower down payment, longer repayment terms,  and the ability to purchase a business without the need for significant personal or  business collateral. 

From my experience, the 80-10-10 loan structure is widely favored by the lending  community for SBA loan transactions. 

Typical SBA Loan Structure 

• 80% SBA Financing 

The bank provides an SBA-guaranteed loan for approximately 80% of the  total project cost, which includes the purchase price, closing costs, and  often a portion of working capital. The loan is typically amortized over a 10- year term. The interest rate is variable, tied to the Wall Street Journal Prime  Rate (currently 7.50%) plus an additional 1% to 3%, depending on the  lender. All loans require a personal guarantee from the purchasing owners. • 10% Buyer Down Payment 

While exceptions occasionally allow for a down payment as low as 5%,  most SBA lenders require a minimum of 10% equity injection from the  buyer. This amount is based on the total project cost. 

• 10% Seller Note 

Seller financing can help build confidence for both the lender and buyer,  signaling the seller’s ongoing support for a smooth transition. Though not  mandatory, a seller note often improves lender interest and deal terms. 

The repayment period for the seller note is negotiable but typically  structured over five years or more to avoid placing undue strain on the  buyer’s short-term cash flow. 

Conclusion 

These parameters reflect common SBA lending practices, though every  transaction is unique. It’s highly recommended to engage with two to three SBA  lenders to assess interest levels, compare loan terms, and determine the most  appropriate structure for your specific acquisition.