How to buy a business with an SBA loan (2026 rules)

The rules at a glance

SBA loans are the most common way first-time buyers pay for an established business. In fiscal 2025 the SBA backed 7,003 loans for business purchases, $8.29 billion in total, averaging $1.18 million per loan. The government guarantees most of the loan for the bank, which is why a bank will lend 90% of the cost of a business it has never run.

Who qualifies

The SBA sets the minimum. Your lender adds its own requirements on top. Expect all of these:

• Citizenship. Every owner and every guarantor must be a US citizen or US national whose main home is in the US. Since March 1, 2026, lawful permanent residents (green card holders) cannot own any part of a business bought with an SBA loan.
• The whole business. The standard SBA purchase is one where the buyer takes over 100% of the business. If you buy the company's shares instead of its assets, you need 100% ownership and control.
• Experience to run it. Lenders want to see that you can manage the business: running a team, a budget or a similar operation. Experience in the same industry helps but is not always required.
• Clean personal credit. The lender checks your credit and how you have handled past debts.
• Cash left after closing. Under the October 2026 rules, lenders look at what you have in reserve after the down payment, not only at whether you can make it.
• A personal guarantee. Anyone owning 20% or more signs for the loan personally. If the business can't pay, you are responsible for the debt. If the business's assets don't fully cover the loan, the lender also takes a lien on personal real estate where you have at least 25% equity, such as your home.

How much cash you need

The down payment is at least 10% of the total project cost, not 10% of the price. The total project cost is the price plus working capital for the first months, closing costs (legal, valuation and lender fees) and the SBA guaranty fee, which is usually added to the loan.

Where the 10% can come from: at least half has to be your own resources. That means cash you have, cash gifted to you, or a personal loan you can show you will repay from income outside the business. The other half, at most, can come from a seller note on full standby or from a small outside investor who owns less than 20% and has no control.

To see the biggest purchase your cash supports, use the SBA loan calculator. As a rough rule, with typical costs your cash supports a price of about nine times what you put in, or about eighteen times with a standby seller note. $100,000 supports a business priced around $908,000, or around $1.8 million with a standby note.

What the bank checks: the 1.25x test

Before anything else, the bank asks one question: does the business already make enough to pay the loan, with room to spare? The measure is the debt service coverage ratio (DSCR): the business's yearly profit, after paying you a market salary, divided by all of its yearly loan payments. Since October 1, 2026 it has to be at least 1.25 on a standard purchase.

• Profit means the seller's actual numbers: the last tax year, or the average of the last two. Projections and your growth plans don't count toward the test.
• Adjustments to profit (add-backs, like the owner's personal car run through the business) only count if they can be proven.
• The bank deducts a market salary for whoever runs the business, usually you.
• A seller note with payments counts in the yearly payments. A note on full standby does not.

Example: a business priced at $1,200,000 that made $350,000 last year. Take out a $90,000 salary for you and $260,000 is left for loan payments. With $135,000 of your cash, the bank loan is about $1,186,000 and the payments come to $186,134 a year at 9.75% over 10 years. $260,000 divided by $186,134 is 1.39x, so the deal clears the bar. Run your own deal in the DSCR calculator.

What it costs

• Interest. SBA loan rates are variable and capped. On loans over $350,000 the cap is Prime plus 3%, which is 10.00% with Prime at 7.00% (October 2026). Many lenders price below the cap.
• SBA guaranty fee. A one-time fee on the guaranteed part of the loan. For fiscal 2027 it is 2% on loans up to $150,000, 3% up to $700,000, then 3.5% on the first $1 million guaranteed and 3.75% above that. On a $900,000 loan it comes to $23,625, and it is usually added to the loan.
• Closing costs. The business valuation, attorney fees for the purchase and the loan, lender fees and, from a $3 million price, the quality of earnings report.
• Working capital. Cash for the business's first months, usually built into the loan and the total project cost.

Seller financing and the standby rule

Many purchases include a seller note: the seller agrees to be paid part of the price over time. Under the SBA rules there are two kinds.

• Full standby. The seller gets no payments of principal or interest until the SBA loan is repaid. Interest can build up and is paid later. This kind counts toward up to half of your 10% and is left out of the 1.25x test.
• Regular payments. A seller note that is paid along the way does not count toward your 10%, and its payments go into the 1.25x test.

Ask about seller financing early. A seller who will carry part of the price is also telling you how confident they are in the business. After closing, the seller can stay on as a consultant for up to 24 months to help with customers and staff.

Step by step: from first look to closing

1. Know your number. Start from your cash and work out the price range you can afford before you look at listings.
2. Find businesses that pass the test. Screen listings for profit that covers the loan payments 1.25 times, after a salary, in your price range.
3. Check the numbers before you offer. Ask for three years of tax returns and compare them with the seller's profit and loss statements and bank deposits.
4. Make the offer. A letter of intent (LOI) sets the price, the structure (including any seller note) and a period for due diligence. Most of it is non-binding, but it usually gives you a period of exclusivity.
5. Apply with an SBA lender. The lender reviews you and the business and orders an independent valuation, plus a quality of earnings report from a $3 million price.
6. Due diligence and the purchase agreement. With your attorney and accountant, verify customers, staff, contracts, leases and debts while the purchase agreement is negotiated.
7. Close. The lender's conditions are met, the money moves and the keys change hands. SBA purchases commonly close 60 to 120 days after a signed letter of intent.

Why SBA purchase loans get turned down

• The tax returns don't support the profit in the listing, so the business fails the 1.25x test.
• The add-backs the seller claims can't be documented.
• Part of the down payment comes from a source that doesn't count, like a seller note with payments.
• An owner or guarantor doesn't meet the citizenship rule.
• Too much of the revenue depends on one or two customers.
• The price is higher than the independent valuation supports.

If an SBA loan isn't an option

If you are a green card holder, or the business doesn't fit the SBA rules, there are other ways to buy: more seller financing, a conventional bank loan or a private lender. Expect a bigger down payment and a higher rate. On the call we look at which path fits your situation.

Questions buyers ask

Sources: SBA SOP 50 10 8.1, issued August 14, 2026, for loans numbered on or after October 1, 2026. SBA Policy Notice 5000-876441, effective March 1, 2026 (citizenship and residency). SBA 7(a) loan-level data, fiscal year 2025. WSJ Prime Rate, 7.00% since September 16, 2026. Closing timeline: Acquisition Stars. Example numbers use the defaults of our calculators. This guide is general information, not legal, tax or lending advice, and your lender's requirements may be stricter.