How to Get a Loan to Buy an Existing Business

Why "existing business" loans are a different conversation

The immigrant couples walking the floor at the April 2026 Montreal Franchise Expo weren't asking about franchises in the abstract — they were asking how to finance a specific business they had already found. That is the audience for this article: buyers who have identified a target and need to understand the financing path from offer to close.

Loans for existing businesses differ from startup loans in one critical way: there is revenue history to underwrite. A lender can look at three years of tax returns, calculate whether the business generates enough cash flow to service the debt, and make a decision grounded in real numbers rather than projections. That makes acquisition financing significantly more accessible — and more predictable — than financing a new venture.

The tradeoff is that the business's history becomes your strongest asset or your biggest liability. A business with three years of clean, growing revenue gets a fast approval and a low rate. A business with declining revenue — even profitable declining revenue — will face questions the seller may not have easy answers for.

Step 1: Confirm the business qualifies before you spend money on due diligence

Before hiring a business attorney or a CPA to review the books, run the basic lender math yourself. Ask the seller for the last three years of tax returns and a current Profit & Loss statement. Calculate the Seller's Discretionary Earnings (SDE): net profit plus the owner's salary plus any personal expenses run through the business.

Then estimate your debt service: if you're borrowing $400,000 at 8.5% over 10 years, your annual payments are approximately $59,500. Divide the SDE by $59,500. If the result is below 1.25, a lender will likely decline the deal at that purchase price. You either need a lower price, a larger down payment, or a different structure.

This math takes 20 minutes and can save you $3,000–$5,000 in due diligence costs on a deal that was never going to be financed.

Step 2: Assemble your document package

Lenders for existing business acquisitions require documentation from both the buyer and the business being purchased. Incomplete packages are the most common cause of timeline delays — not lender slowness.

**From the business (seller provides):**

| Document | Why lenders need it | |---|---| | 3 years of business tax returns | Cash flow verification and trend analysis | | Current Profit & Loss statement | YTD performance vs. historical | | Balance sheet | Asset and liability snapshot | | List of assets to be transferred | Determines collateral value | | Copy of the current lease | Confirms tenure and renewal options | | Any existing loan or equipment financing | Reveals off-P&L liabilities |

**From you (buyer provides):**

| Document | Why lenders need it | |---|---| | 3 years of personal tax returns | Verifies personal income and debt | | Personal financial statement | Net worth and liquidity | | Resume or business biography | Demonstrates relevant experience | | Credit authorization | Lender pulls credit report |

Start collecting these before you make an offer. Sellers who want to close quickly are more cooperative with buyers who have their paperwork ready.

Step 3: Choose the right loan structure

For most existing business acquisitions under $5M, SBA 7(a) is the starting point. The SBA guarantees up to 85% of the loan, which lets participating lenders offer 10% down payment versus the 20–30% required for conventional loans. For a $500,000 acquisition, that is the difference between $50,000 and $100,000–$150,000 out of pocket at closing.

SBA 7(a) key terms for 2026: maximum loan of $5,000,000, down payment of 10% for full-documentation deals, terms of up to 10 years for business acquisitions, interest rate of prime plus 2.75–4.75%. For deals where the seller agrees to carry a note (seller financing), SBA allows the seller note to be on standby — no payments to the seller for the first two years of the loan.

For deals above $5M or for buyers who need to close in under 30 days, conventional bank financing or private lending are alternatives — but both require more cash at closing and carry stricter credit requirements. See the SBA vs. Business Loan vs. Private Lender comparison for the full breakdown.

Step 4: Apply and move through underwriting

Once you have your document package and have chosen a lender, the formal application process begins. SBA Preferred Lenders — banks and credit unions approved to make SBA lending decisions without waiting for SBA review — are the fastest path. Search the SBA's lender match tool or ask your business broker to recommend one with franchise and acquisition experience.

Underwriting for existing business acquisitions typically focuses on four things: DSCR (does the business cash flow support the debt?), collateral (what assets secure the loan?), buyer experience (do you have relevant background?), and business trends (is revenue growing or declining?).

One number lenders look at that most buyers miss: customer concentration. If a single customer accounts for more than 25% of revenue, lenders treat that as a concentration risk — even if the customer relationship is long-standing. Get a breakdown of revenue by customer before you apply.

Step 5: Handle the lease and close

The lease kills more acquisition deals than any other single factor. Lenders will not fund a business acquisition if the lease has less than the loan term remaining — typically 10 years for SBA deals. If the business has 3 years left on its lease with no renewal option, you need the landlord to extend or renew before the lender will commit.

This takes time. Landlords are not parties to the transaction and have no urgency to move quickly. Budget 30–60 days for lease negotiations and start them early in the process — before you have spent $5,000 on attorney and CPA fees.

For franchise resales, there is an additional step: franchisor transfer approval. The brand must approve you as the new franchisee, which requires meeting their net worth and liquidity minimums and completing their standard background process. Transfer approval adds 30–60 days and a transfer fee, typically $5,000–$20,000.

Once underwriting clears and the lease and transfer approvals are in place, closing takes 1–3 days. The SBA closing package includes a promissory note, a security agreement, and a personal guarantee from every owner holding 20% or more of the business.

What kills existing business acquisition loans

Declining revenue is the single most common reason these deals fail in underwriting. A business that earned $300,000 in 2023, $260,000 in 2024, and $230,000 in 2025 raises a clear question: why would this trend reverse under new ownership? If you cannot document a cause — a lost major customer, a one-time expense, a lease renegotiation that lowered costs — lenders will price in the risk with a lower loan amount, a higher rate, or a decline.

Other common deal killers: — Lease expiring within 2–3 years with no renewal option — Owner's salary was the real product (a business where the owner's personal relationships are the customer relationships) — Environmental issues on the property — SBA-ineligible industry (speculative real estate, gambling, certain financial services) — Buyer's prior bankruptcy within the past 3 years

None of these are automatic disqualifiers with every lender. Private lenders and CDFIs sometimes work with deals conventional and SBA lenders decline — at a higher rate.

Frequently Asked Questions