How Do You Buy a Business? A Plain-English Walkthrough

The Honest Answer: It Takes Longer Than You Think

Most people who buy a business spend 6–12 months from the moment they decide to buy until the day they own one. That timeline surprises a lot of first-time buyers. Here's where the time goes:

- **1–3 months:** Defining criteria, getting financing pre-approved, building your search - **3–6 months:** Reviewing listings, touring businesses, making offers that get rejected or fall through - **1–2 months:** Due diligence and SBA underwriting after signing a Letter of Intent - **2–4 weeks:** Final closing mechanics

The search phase is the longest and least predictable. Most buyers look at 10–20 businesses for every one they buy. That's normal, not a sign something's wrong.

The good news: the process has a clear sequence. Once you know what step you're on, the path forward is straightforward.

Phase 1: Get Your Finances and Criteria Clear

Before you look at a single listing, answer these questions:

**How much can you inject?** SBA loans require 10–20% equity injection. If you have $75,000 liquid (savings, ROBS-eligible retirement funds, gift funds), you can buy a business in the $375,000–$750,000 range with SBA financing.

**What's your credit score?** Most SBA lenders want 650+ personal credit. Check your score now. If it's below 650, spend 3–6 months improving it before you start seriously searching.

**What industry do you want?** This is partly practical (what do you know?) and partly lifestyle (what does the work day look like?). A pizza franchise requires nights and weekends. A B2B printing franchise runs 9–5. A gym franchise is early mornings. There's no wrong answer — just be honest with yourself.

**Geography.** Are you buying near where you live, or are you open to relocation? For most Main Street businesses, proximity matters — you'll likely be working there.

Write these down. They become your filter as you evaluate listings.

Phase 2: Get SBA Pre-Qualified

Before you make offers, talk to an SBA-preferred lender. This isn't a commitment — it's a soft pre-qualification that tells you how much you can borrow.

You'll typically provide: - Last 2–3 years of personal tax returns - Personal financial statement (assets and liabilities) - Resume (lenders want to see relevant experience) - Business plan or acquisition summary (sometimes)

The lender will tell you: here's roughly what you can borrow, here's what your payments will look like, and here are any issues we'd want to address before underwriting.

Getting pre-qualified before you make offers makes you a more credible buyer. Sellers — especially through brokers — prefer buyers with financing in place. It also helps you avoid falling in love with a business that your financing can't support.

Phase 3: Find and Evaluate Listings

**Where to look:** - BizBuySell.com — largest marketplace for Main Street businesses - BusinessBroker.net — second-largest marketplace - Franchise portals (Franchise Gator, Franchise.com) — for franchise resales and new territories - Local business brokers — often have off-market listings before they go public - Direct outreach to owners in industries you want to buy

**What to look for:** - 3 years of financial history showing consistent or growing earnings - A reason for sale that makes sense (retirement, health, relocation — not "I'm tired of it") - Owner involvement that's appropriate to your availability (if you have a day job, a business needing 60-hour weeks from the owner is wrong) - Lease or real estate situation that gives you runway (minimum 5 years remaining, ideally 10+)

**What to avoid:** - Declining revenue without a clear explanation - Heavy customer concentration (one customer = 30%+ of revenue) - Leases expiring in under 2 years with no renewal option - Sellers who won't share tax returns (or whose tax returns don't match the P&L)

Phase 4: Make an Offer (Letter of Intent)

When you find a business you want to buy, you submit a **Letter of Intent (LOI)**. This is a non-binding offer that outlines:

- **Purchase price** and how it's structured (all cash at close, SBA financed, seller-financed portion) - **Earnest money deposit** (typically $5,000–$25,000, held in escrow) - **Due diligence period** (typically 30–60 days) - **Exclusivity** (seller agrees not to accept other offers during due diligence) - **Closing deadline**

LOIs are usually 2–4 pages. You don't need a lawyer for an LOI, but you do need one for the Purchase Agreement. Some buyers use a broker or M&A attorney to draft a stronger LOI — worth considering for deals over $500,000.

Sellers counter-offer. That's normal. The negotiation usually lands on price, deal structure, and seller transition period. Don't walk away from a deal over $10,000 on a $500,000 business — the bigger risks are in due diligence, not the headline price.

Phase 5: Due Diligence — Verify Everything

Once the seller signs your LOI, the clock starts on due diligence. This is your window to confirm everything they told you.

**Financial verification:** - Cross-reference bank statements against the P&L line by line - Request the last 3 years of tax returns and compare to the P&Ls - Identify and document every "add-back" (personal expenses, owner salary above market, one-time costs) - Make sure the SBA-eligible earnings (what's left after adding back legitimate expenses) support your loan payments

**Operational verification:** - Tour the operation multiple times, at different times of day - Talk to employees (with seller permission) — they know where the bodies are buried - Review supplier contracts for pricing and exclusivity terms - Understand the customer acquisition process — what happens to sales if the owner stops working?

**Legal verification:** - Lien searches on all business assets - Review of any pending litigation or regulatory actions - Lease review (landlord assignment consent, remaining term, rent escalations) - For franchises: full FDD review with a franchise attorney

Most deals survive due diligence. But the findings often affect price — sellers may reduce the price or offer concessions if due diligence reveals issues they hadn't disclosed.

Phase 6: SBA Underwriting

While you're doing due diligence, your SBA lender is doing their own underwriting. They'll order:

- A business valuation (required for SBA deals — typically $3,000–$5,000, often paid by buyer) - Environmental report (for real estate transactions) - Background checks - Verification of your equity injection source

SBA underwriting for a business acquisition typically takes 30–60 days. Preferred Lender Program (PLP) lenders can underwrite and approve internally — faster than non-PLP lenders who need to submit to the SBA for approval.

Common reasons SBA approval falls through: - Debt service coverage ratio (DSCR) below 1.25× — the business doesn't earn enough to pay the loan - Business valuation comes in below purchase price - Seller's tax returns don't support the earnings claim - Buyer's credit issues surface during underwriting

If your deal gets declined, the lender should explain why. Sometimes it's fixable (seller reduces price, injects additional equity). Sometimes it's not.

Phase 7: Closing

Closing day is anticlimactic — mostly signing documents. But the steps leading up to it matter:

**1–2 weeks before close:** Final walkthrough of the business. Confirm inventory levels, equipment condition, and that nothing has changed since you signed the LOI.

**At close:** You'll sign the purchase agreement, SBA promissory note, collateral agreements, UCC filings, and (for franchises) the franchise agreement. Funds are wired, ownership transfers.

**Post-close:** Most sellers stay for a transition period — 30–90 days depending on the deal. Get specific deliverables in writing: "Seller will introduce buyer to all accounts over $10,000 within 30 days of closing." Vague transition agreements lead to disputes.

You're now a business owner. The real work starts here.

The One Thing Most Buyers Skip: Location Scoring

For any business with a physical location — franchise or independent — the address is a core asset. Yet most buyers never independently validate it.

The seller will tell you foot traffic is great. The franchisor's site approval team will sign off on the location. But neither of them is accountable for your revenue after closing.

ScoreVet scores any commercial address on a 1–10 scale in about 60 seconds — analyzing trade area demographics, competitive density, transit access, and daytime population. A 7+ is a viable site. A 5 or below warrants hard questions before you sign.

Run the address before you sign the LOI. Run it again before you close. It's one data point among many — but it's one most buyers skip, and it matters.

Frequently Asked Questions