Securing capital is the biggest hurdle in buying a small business. Banks often view these deals—whether for a route, a retail store, or an online business—as high-risk due to a lack of hard collateral.

However, deals get done every day. To close yours, you need to understand the landscape and structure your deal correctly. Here is your expert guide to the three primary financing vehicles and how to leverage them.

1. Seller Financing: The Flexible Option

This is often your best-case scenario for terms, but the hardest to find.

  • The Strategy: Pitch the seller on the benefits of steady income without the operational headache. Use seller financing to bridge the gap between what the bank will lend and the purchase price.
  • The Pros: Flexible underwriting, lower rates, and lower down payments.
  • The Risks: You lose the “sanity check” of a bank’s due diligence. You must ensure all liens, liabilities, and UCC filings are cleared before taking title.
  • Action Item: Always negotiate for the seller to carry a portion of the note. It lowers your cash-to-close and signals their confidence in the business to other lenders.

2. Traditional Bank Loans: The Relationship Play

Conventional financing is the “Holy Grail”—low rates and less paperwork than the SBA—but it is reserved for strong borrowers with solid relationships.

  • The Reality: Expect a 30% down payment and a 7-year term. Banks will scrutinize the business’s cash flow and your personal liquidity heavily.
  • Action Item: If you have a high net worth and a strong banking relationship, start here. If the bank hesitates due to the asset type, pivot immediately to SBA.

3. SBA 7(a) Loan Program: The Deal Maker

The SBA 7(a) is the engine behind most small business acquisitions. By guaranteeing 75% of the loan, the SBA mitigates the bank’s risk, making them willing to fund deals they would otherwise reject.

  • The Terms: Typically a 10-year term, no prepayment penalty, and up to 90% financing (though 85% is standard). Rates float above Prime.
  • The Underwriting: The business’s tax returns must show enough cash flow to cover debt service. You need a credit score of 680+ and verifiable liquidity for the down payment.
  • Action Item: Treat the SBA process as a marathon, not a sprint. Have your financials in perfect order before applying to speed up the notoriously slow process.

The Pro Move: The Hybrid Structure

Don’t view these options in isolation. The most successful deal structure often combines SBA lending with seller financing to minimize your risk and capital outlay.

Example Deal Structure:

  • Purchase Price: $1,000,000
  • SBA Loan: $800,000 (80%)
  • Seller Note: $100,000 (10% – second lien position)
  • Buyer Cash: $100,000 (10%)

Why this works: The bank sees the seller has “skin in the game,” which often tips a marginal deal into approval territory. You preserve your liquidity, and the seller gets the deal closed.