Insights
2025-11-14
Funding an Acquisition with an SBA 7(a) Loan
Introduction
For many companies, growth hinges on acquisition. An SBA 7(a) loan can make that possible, providing capital with favorable terms compared to private equity debt or seller financing. This article shows how to structure an SBA 7(a) to fund an acquisition, key considerations, and pitfalls to avoid.
1. Why SBA 7(a) Works for Acquisitions
- Lower cost of capital vs. alternative debt
- Ability to finance goodwill and working capital
- Longer amortization helps maintain cash flow
2. Structuring the Acquisition Deal
- Purchase price valuation (EBITDA multiple, asset basis)
- Equity injection requirement (often 10–20%)
- Allocation: acquisition, working capital, transition reserves
3. Documentation & Due Diligence
- Historical financials and tax returns of target
- Pro forma combined statements
- Customer contracts, vendor relationships, employee retention plans
4. Risk Mitigation Strategies
- Escrow / holdbacks for performance
- Seller warranties and indemnities
- Contingency reserves for integration
5. Post-Acquisition Integration & Servicing
- Cash flow monitoring and covenant compliance
- Reporting to lender and SBA
- Adjustments for synergy and operations
Key Takeaway
When structured properly, an SBA 7(a) loan is a compelling financing vehicle for business acquisitions, offering favorable terms and alignment with long-term growth.
FAQs
Can SBA 7(a) loans fund 100% of the purchase price?
Rarely, equity injection is almost always needed.
Is the acquisition target required to be SBA-compliant?
Not necessarily, the acquiring company is the borrower.
Can I finance integration costs?
Yes, up to limits in the loan package.
How long does an acquisition SBA loan take?
Typically, 60–120 days, depending on complexity.
What is a pro forma, and why is it required?
It projects combined operations and debt service post-close.
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