SBA loans to buy a business: the 2026 rules and what 5,371 loans show

Buying a business that already exists is one of the main things the SBA 7(a) program pays for. In the twelve months to June 30, 2026, lenders made 5,371 term loans for that purpose, worth $7.4 billion. That is 11% of all 7(a) loans and 26% of the money.

SBA's rules for these loans sit in one appendix of its lending manual. The manual that took effect on October 1, 2026 is stricter than the one before it in three ways a buyer will feel. The cash flow test is higher. It has to be passed on what the business has already earned. And the 25-year terms that real estate used to unlock are mostly gone.

This guide sets out those rules and then what the loan records show. To test a deal of your own, use the acquisition calculator.

How big these loans are

$25,000 or lessunder 1%

$25,001–$50,000under 1%

$50,001–$150,0004%

$150,001–$350,00015%

$350,001–$1 million33%

$1–$2 million24%

$2–$5 million23%

Source: The Mercantile Record analysis of SBA 7(a) loan records as of June 30, 2026. Method.

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Loan size	Loans	Share
$25,000 or less	2	0.0%
$25,001–$50,000	19	0.4%
$50,001–$150,000	232	4.3%
$150,001–$350,000	825	15.4%
$350,001–$1 million	1,789	33.3%
$1–$2 million	1,268	23.6%
$2–$5 million	1,236	23.0%

The median loan to buy a business was $927,000. The median for other 7(a) term loans was $268,850. A quarter of purchase loans were under $433,000 and a quarter were over $1,895,500. 2.8% were for the program's maximum of $5 million.

Source: The Mercantile Record analysis of SBA 7(a) loan records as of June 30, 2026. Method.

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Approved in	Loans	Amount	Median loan	Share of all 7(a) dollars
FY2021	5,651	$6.8 billion	$756,000	21%
FY2022	4,267	$5.3 billion	$800,000	23%
FY2023	4,239	$5 billion	$725,000	20%
FY2024	4,832	$6 billion	$801,900	22%
FY2025	5,910	$7.9 billion	$868,000	25%

The typical purchase loan has grown. The median was $756,000 in fiscal 2021 and $868,000 in fiscal 2025.

The four kinds of purchase

SBA's manual sorts every purchase into one of four types, and the type decides the terms.

The first type is the default. A lender that wants to treat a deal as one of the other three has to document why it qualifies.

Two details are easy to miss.

• A newcomer in an owner buyout is limited. Someone who has not worked in the business for at least 24 months may take less than half of it and may not become its largest owner. If the deal goes further than that, it is held to the first row's standards, although the seller may still stay on.
• The loan is never made to a person alone. The business must be the borrower or a co-borrower. When an individual buys the ownership interest, the individual and the business are co-borrowers and both sign the note.

What changed in the current manual

We read the current manual against the one it replaced, which had been in force since June 1, 2025.

The first row matters most. Under the earlier manual a purchase could be approved on projections showing coverage of 1.15 within two years. Now most purchases need 1.25 on results the business has already posted.

The down payment

SBA calls it the equity injection. For a purchase it is 10% of the total project cost. That is everything it takes to complete the purchase and operate: the price, any real estate bought with it, working capital and closing costs. In an owner buyout the 10% is measured on the purchase price alone.

For a first-time purchase the manual says the 10% cannot be reduced or eliminated. For a business expansion or an owner buyout, the lender may reduce or waive it if the business has the liquidity and working capital to keep operating and its balance sheet did not show a negative net worth at the last year-end. A lender that waives it altogether cannot put working capital into the loan.

Not every source of money counts the same way.

The seller note needs the most care. Take a purchase with a total cost of $1,050,000, so that $105,000 of equity is required.

• With $60,000 of the buyer's cash and a $50,000 seller note on full standby, $110,000 counts. The requirement is met.
• With the same cash and no seller note, the buyer is $45,000 short.
• With $20,000 of cash and a $100,000 standby note, only $52,500 of the note counts, because standby debt can supply at most half of the requirement. The buyer is $32,500 short, even though the cash and the note together come to more than the 10%.

Full standby means what it says: no payments of principal or interest for the term of the SBA loan. On a ten-year loan the seller waits ten years. Interest may accrue on the note in the meantime. The seller must rank behind the lender on any collateral, and whoever provides standby debt may not also take an equity investment in the business.

A seller note that is repaid from the start is not equity at all. It is debt. Its payments are counted in the cash flow test, and the manual limits the total debt that supports a purchase, that note included, to the value of the business. If the note is interest-only, the lender must test it as though it were repaid over no more than ten years.

What the business must be worth

Every purchase needs a business valuation, and the price has to stand up to it. Real estate is appraised separately and is left out of the price for these tests.

• Who values it. If the price of the business is over $350,000, or there is a close relationship between buyer and seller, the valuation must come from an independent appraiser who holds one of the five business-valuation credentials the manual lists. At $350,000 or less the lender may do its own. Either way the valuation is ordered by the lender. One prepared for the buyer or the seller cannot be used.
• If the price is higher than the valuation, the difference must be made up by equity. Standby debt may be used for this part beyond the usual half. In the example above, a valuation of $850,000 against the $1,000,000 price leaves $150,000 to cover, and the buyer's cash and standby note fall $40,000 short of it.
• At a price of $3 million or more, a first-time purchase or a business expansion also needs a quality-of-earnings report: an independent review that reconciles the seller's financial statements and tax returns with its bank statements and arrives at an adjusted earnings figure. The lender must use that figure in the cash flow test. A buyer who has already commissioned a report can hand it over, but the lender must have it reviewed by a firm of its own.
• The seller's numbers are checked. The lender must verify the figures behind the valuation against the seller's tax transcripts from the IRS, and must visit the business.
• Goodwill can be financed. The loan may cover intangible assets such as goodwill, customer lists and agreements not to compete, provided the valuation and the other financial checks are done.
• Earn-outs are not allowed. The manual prohibits seller earn-outs, in which part of the price depends on how the business performs after the sale. A rebate to the buyer based on performance is allowed, and the money must go to pay down the loan.
• The seller leaves. After a first-time purchase or a business expansion, the seller may not stay as an owner, officer, director or employee. The business may keep the seller on as a consultant for up to 24 months in total.

The records hold loan amounts, not prices. 12% of purchase loans in the last twelve months were themselves for $3 million or more.

The cash flow test

The business being bought must have produced enough cash to pay its lenders with room to spare.

The minimum is 1.25 times the yearly debt payments for a first-time purchase or an owner buyout, and 1.15 when an operating business buys another. SBA defines the ratio as earnings before interest, taxes, depreciation and amortization, divided by all the debt payments the business will owe after the purchase. It is measured on the last fiscal year or the average of the last two.

The lender may adjust those earnings for savings the purchase will bring: the seller's discretionary expenses, for example, or a change in what the owner is paid. It has to justify each adjustment in writing. If it changes the owners' pay, it must show that they can still meet their own obligations. It must also run the test with any affiliated business included, and reach at least 1.00.

It may not count on growth. The manual tells the lender to evaluate the buyer's projections but says it "may not rely on them" to meet the requirement. A buyer who falls short can put in more equity to make the loan smaller.

The one exception is a business bought together with a special-purpose property it operates from, such as a hotel or self-storage units. If the appraised value of the property fully secures the loan, the lender may rely on two years of projections.

In the example, the SBA loan is $940,000 plus a guaranty fee of $24,675. At 9% over ten years the payments come to $146,641 a year. The business earned $260,000, so coverage is 1.77. It would pass with earnings as low as $183,400. At $170,000 coverage would be 1.16, and the loan would have to be about $71,000 smaller. If the buyer were an operating business in the same industry, $168,700 would be enough.

Term, rate and fee

Term. The part of the loan that pays for the business is repaid over no more than ten years. If real estate is bought as well, it can go into a separate loan, or the two terms can be blended: ten years for the business, working capital and costs, up to 25 for the real estate, weighted by cost and rounded to the nearest year. Adding $500,000 of real estate to the example gives a term of 15 years.

This is tighter than before. Under the earlier manual a purchase loan could run 25 years whenever real estate took at least 51% of it. That option no longer applies to purchases. The full 25 years is kept for a special-purpose property that makes up at least 85% of the project cost.

In the records, 71% of purchase loans ran exactly ten years and 19% ran 25 years or more. All of them were approved under the earlier manual.

Rate. The median purchase loan started at 9%, which is 0.5 points under the median for other term loans. Measured against the prime rate that applied when each loan was approved, the median was prime plus 2, against prime plus 2.75 for the others. That is an effect of size: purchase loans are large, and large loans are cheaper.

loans to buy a business, medianmiddle half of those loansother term loans, median

6%7%8%9%10%11%12%

$50,001–$150,0009.25%

$150,001–$350,0009.25%

$350,001–$1 million9%

$1–$2 million8.75%

$2–$5 million8.5%

Source: The Mercantile Record analysis of SBA 7(a) loan records as of June 30, 2026. Method.

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Loan size	Loans to buy a business	Median rate	25th percentile	75th percentile	Other term loans	Their median rate
$50,001–$150,000	232	9.25%	8.25%	9.75%	7,793	9.75%
$150,001–$350,000	825	9.25%	8.75%	9.75%	8,107	9.75%
$350,001–$1 million	1,789	9%	8.35%	9.5%	6,189	9%
$1–$2 million	1,268	8.75%	8.15%	9.5%	2,834	8.75%
$2–$5 million	1,236	8.5%	7.97%	9.25%	2,426	8.5%

12% of purchase loans had a fixed rate. The rest move with a base rate, usually prime. Our study of 7(a) rates covers the ceilings.

Fee. The upfront guaranty fee follows the ordinary 7(a) schedule and may be paid from the loan. In the example it is $24,675. The SBA loan calculator works it out for any amount.

Collateral and guarantees

The assets that change hands in the purchase secure the loan, including licenses that transfer with the business, such as a liquor license. Vehicles worth $20,000 or less are excepted. The lender must also take a security interest in the business's receivables and inventory.

SBA then asks whether the loan is "fully secured", and it counts assets at a discount to decide. Improved real estate counts for no more than 85% of its market value, used equipment for 50% of its book value or 80% of an appraised liquidation value, furniture and fixtures for 10%, receivables and inventory for 10%. Goodwill counts for nothing, so a purchase that is mostly goodwill will show a shortfall.

When there is a shortfall, the lender must take a lien on real estate owned solely by the co-borrowers, by owners of 20% or more and by the guarantors. That includes their homes. SBA does not require the lien where the owner's equity in a property is less than 25% of its market value, and the lien may be limited to the shortfall. For a property owned jointly with a spouse, the lender must consider a lien as well.

Every owner of 20% or more guarantees the loan personally and without limit, counted on the ownership after the sale. A seller who keeps a stake of less than 20% after selling part of the business must guarantee the loan too, for at least two years, though without pledging a home.

On a standard 7(a) loan that is not fully secured, the lender must also require life insurance, for the amount of the shortfall, on the principal of a business that depends on one owner.

Our guide to personal guarantees and collateral covers these rules for every kind of 7(a) loan, and what SBA's manual says happens when a loan is not repaid.

Who makes these loans, and for what

614 lenders made at least one loan to buy a business in the twelve months. Ten of them made 32% of the total.

The last column shows how much of each lender's 7(a) lending is purchases. For Hanmi Bank it was 52% of loans in the period; for Celtic Bank Corporation, 8%.

90% of the loans were approved by preferred lenders under their own authority, without SBA reviewing the credit first. 2.6% were SBA Express loans, which face the same cash flow test when they pay for a purchase.

Full-service restaurants342

Hotels and motels230

Limited-service restaurants220

Liquor stores210

Gas stations with convenience stores148

General automotive repair144

Child care centers106

All other specialty trade contractors94

Landscaping services94

Plumbing and HVAC contractors90

Coffee, juice and snack bars82

CPA firms80

Source: The Mercantile Record analysis of SBA 7(a) loan records as of June 30, 2026. Method.

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Industry	Loans	Median loan	Median rate
Full-service restaurants	342	$551,500	9%
Hotels and motels	230	$3,206,250	8.25%
Limited-service restaurants	220	$430,000	9.12%
Liquor stores	210	$885,000	8.75%
Gas stations with convenience stores	148	$1,892,000	8.5%
General automotive repair	144	$782,050	9.07%
Child care centers	106	$978,250	9%
All other specialty trade contractors	94	$1,268,500	9%
Landscaping services	94	$877,950	9.12%
Plumbing and HVAC contractors	90	$1,259,450	9%
Coffee, juice and snack bars	82	$355,250	9.25%
CPA firms	80	$725,000	8.88%

19% of the loans carried a franchise code.

Once approved, a purchase loan was funded in a median of 22 days, against 20 for other term loans. It was much less likely to be cancelled first: 9% of purchase approvals in fiscal 2025 were cancelled, against 22% of approvals for other term loans.

How these loans turned out

SBA's file has marked loans as purchases only since fiscal 2018, so the record is short. We took term loans approved in fiscal years 2018 through 2021 and counted those charged off within four years.

Buying a business1.3%

Starting a business3.1%

All other term loans1.9%

Source: The Mercantile Record analysis of SBA 7(a) loan records as of June 30, 2026. Method.

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Purpose	Loans	Charged off within 4 years	Charged off to date
Buying a business	19,444	1.3%	3.2%
Starting a business	26,629	3.1%	6.4%
All other term loans	78,863	1.9%	4.7%

Buying a business looks safer than starting one, and safer than other term loans. Part of that is size. Purchase loans are larger, and larger loans of every kind are charged off less often.

Compare like with like and the picture splits.

• Among loans of $350,000 or less, purchases did best: 2.6% charged off within four years, against 4.4% of start-up loans and 3.0% of the rest.
• Between $350,001 and $1 million, purchase loans sat between the other two. 3.0% have been charged off to date, against 4.5% of start-up loans and 1.4% of other term loans.
• Over $1 million, purchase loans did worst of the three: 1.9% charged off to date, against 1.5% of start-up loans and 1.0% of the others.

The records do not say why. They also count only loans that were written off, which is the last step in a failure. Our study of charge-offs by industry explains what that measure misses.

All of these loans were made under earlier versions of the rules, and over years that included the pandemic. They are a guide to how purchases have fared, not a forecast for loans made now.

What the records cannot tell you

• The mark is the lender's. A loan is in this study because the lender labelled it a change of ownership. Before fiscal 2021 many loans carried no label at all, which is why our yearly chart starts there.
• Lines of credit are left out. 869 revolving lines approved in the same twelve months carry the same label. We count term loans only.
• Nothing about the deal itself. The file has the loan, not the price, the valuation or the buyer's equity. It does not say which of SBA's four types a purchase was.
• Nothing about the deals that were turned down.

This article is general information. It is not an offer of credit, and we are not a lender.