How Buyers Finance a Business Acquisition

Most first-time buyers assume they need to show up with a suitcase of cash. They don't. The majority of small business acquisitions in the $1M-$10M range are financed through a combination of debt, seller participation, and buyer equity. Based on hundreds of real buyer-seller conversations on Rejigg, here's how financing actually works and when you need to start talking about it.

The Financing Conversation Comes Up Earlier Than You Think

Financing is one of the first things sellers want to understand. Before you've toured the facility, before you've reviewed customer contracts, the seller is already wondering: can this buyer actually close?

In conversations on Rejigg, financing typically comes up within the first two or three messages. Sometimes the buyer brings it up to demonstrate credibility. More often, the seller asks directly. Either way, having a clear answer builds trust fast. A vague "I'm exploring my options" response puts you behind a buyer who says "I'm pre-qualified for SBA financing and have $200K in liquidity."

SBA 7(a) Loans: The Most Common Path

SBA 7(a) loans are the backbone of small business acquisition financing. The SBA doesn't lend money directly. Instead, it guarantees a portion of the loan through an approved lender (usually a bank or credit union), which reduces the lender's risk and makes them willing to finance a deal they'd otherwise pass on.

Here's what the typical SBA deal looks like for acquisitions:

• Down payment: 10-20% of the total project cost (purchase price plus working capital, closing costs, and fees)
• Loan term: 10 years for business acquisitions
• Interest rate: Variable, typically Prime + 2-3%
• Maximum loan amount: $5 million
• Collateral: Business assets, plus a personal guarantee from the buyer

The SBA process takes 60-90 days from application to funding. That timeline matters because it affects your letter of intent (the formal offer document that outlines the deal terms before you sign a purchase agreement). Sellers who've been through a deal before know that SBA-financed deals take longer to close than cash deals. Smart buyers acknowledge this upfront rather than letting the timeline become a surprise.

One thing that trips up first-time buyers: SBA lenders evaluate the business's cash flow, not just your personal credit. The business needs to demonstrate enough earnings to cover the loan payments, typically at a debt service coverage ratio of 1.25x. That means for every dollar of annual loan payments, the business needs to generate $1.25 in cash flow.

Use Rejigg's SBA loan calculator to model different scenarios before you make an offer. Knowing your monthly payment at various purchase prices helps you negotiate from a position of clarity.

Seller Financing: A Complement, Not a Replacement

Seller financing means the seller agrees to receive part of the purchase price over time, essentially acting as a lender. The buyer makes regular payments to the seller after closing, usually monthly, with interest.

Seller financing almost never covers the full purchase price. In practice, it's a complement to SBA or conventional financing. The most common structure we see on Rejigg is an SBA loan covering 70-80% of the purchase price, a buyer down payment of 10-15%, and a seller note covering the remaining 5-15%.

Why would a seller agree to this? A few reasons:

• It gets the deal done. If the buyer is $200K short of what the lender will cover, a seller note bridges the gap.
• Interest income. Seller notes typically carry 5-8% interest, which is a decent return for the seller.
• Tax benefits. Spreading income across multiple tax years through an installment sale can reduce the seller's overall tax burden.
• Signal of confidence. A seller willing to carry a note is telling the buyer "I believe this business will keep performing after I leave."

From the buyer's perspective, seller financing can also serve as a form of insurance. If the seller is still owed money, they have a financial incentive to help with the transition, answer your calls six months later when a key customer has questions, and generally make sure you succeed.

Typical seller note terms: 3-5 year repayment period, 5-8% interest, sometimes with a 6-12 month standby period where the seller note payments don't start until the SBA loan is established.

Conventional Bank Loans

Some buyers finance acquisitions through conventional commercial loans without the SBA guarantee. This is more common for buyers with significant assets, an existing banking relationship, or deals that don't fit SBA parameters (like purchasing real estate alongside the business that pushes the total above $5M).

Conventional loans move faster than SBA loans, sometimes closing in 30-45 days. But they usually require more down payment (20-30%), shorter repayment terms (5-7 years), and the bank's underwriting standards can be more conservative. For a well-qualified buyer purchasing a business with strong, documented cash flow, conventional financing is a viable path. For most first-time buyers, SBA is the better option.

Cash Purchases

All-cash deals happen, but they're less common than people assume. In the $1M-$5M range, maybe 15-20% of acquisitions close as all-cash. The percentage increases as deal sizes get larger, where institutional buyers and search funds have raised capital specifically for acquisitions.

Cash offers do carry real advantages in negotiations. Sellers value certainty. An all-cash offer at a slightly lower price often beats a financed offer at asking price, because there's no risk of the deal falling apart during the lending process. If you have the liquidity, leading with "this is a cash offer" in your initial conversation gets the seller's attention immediately.

That said, many experienced buyers choose not to pay all cash even when they could. Using leverage (borrowing) lets you preserve capital for working capital needs after the acquisition, a financial cushion during the transition, or simply a better return on your invested equity.

Investor and Partner Equity

Some buyers bring in equity partners to fund part of the acquisition. This could be a silent investor who contributes capital in exchange for a share of ownership, or an operating partner who brings both money and expertise.

A common structure: the operating buyer puts in 10-15% of the purchase price, an equity partner contributes another 10-15%, and debt covers the rest. The operating buyer gets a majority stake and a salary, while the equity partner gets a minority ownership position and a share of distributions.

If you're considering this route, get the partnership terms in writing before you start making offers. Sellers want to know who they're dealing with and whether the buyer group has their financing figured out. Showing up to a conversation with "I have a partner but we haven't finalized the terms yet" creates uncertainty that hurts your offer.

401(k) Rollovers (ROBS): Using Retirement Funds

ROBS (Rollover for Business Startups) is a structure that lets you use retirement funds to buy a business without paying early withdrawal penalties or taxes. The mechanics work like this: you create a new C-corporation, establish a retirement plan within it, roll your existing 401(k) or IRA into that plan, and the plan uses the funds to purchase stock in the new corporation. The corporation then uses the capital to acquire the business.

ROBS is legal and IRS-approved, but it's complex and requires specialized providers to administer. The typical setup cost runs $5,000-$7,000, with ongoing annual administration fees of $1,500-$2,000. More importantly, you're putting your retirement savings at risk. If the business fails, that money is gone.

We see ROBS used most often as part of a financing stack, contributing to the buyer's equity injection alongside personal savings, rather than as the sole funding source. It's particularly useful for buyers who have substantial retirement funds but limited liquid cash for a down payment.

The Financing Stack: How Deals Actually Come Together

Most acquisitions don't rely on a single financing source. Here's what the typical financing stack looks like for a $2M acquisition:

• SBA 7(a) loan: $1.5M (75%)
• Buyer equity (cash + ROBS): $300K (15%)
• Seller note: $200K (10%)

That buyer needs $300K in personal capital to make this deal work. If they have $150K in cash and $150K in retirement funds eligible for ROBS, they can get there without liquidating other investments.

The key is understanding your financing stack before you start making offers. Sellers on Rejigg consistently tell us that the buyers who close are the ones who had their financing figured out before the first conversation, not the ones who started calling SBA lenders after signing a letter of intent.

Browse businesses on Rejigg with your financing range in mind. When you find one worth pursuing, you can message the seller directly and lead with your financing plan.

Earnest Money and Deposits

Once you sign a letter of intent, you'll typically put down earnest money, usually 5-10% of the purchase price, held in escrow. This deposit shows the seller you're serious and compensates them for taking the business off the market during due diligence.

Earnest money is usually refundable during the due diligence period if you discover something that kills the deal. After due diligence closes, it becomes non-refundable and applies toward the purchase price at closing. Make sure your LOI clearly spells out the conditions under which you get your deposit back.

Timeline Expectations by Financing Type

How long from accepted offer to closing? It depends heavily on your financing:

• Cash: 30-45 days (due diligence is the bottleneck, not financing)
• Conventional loan: 45-60 days
• SBA 7(a): 60-90 days
• SBA + complex structure (ROBS, multiple equity partners, real estate): 90-120 days

Sellers care about this. A lot. When you're competing against another buyer, a faster timeline can be as valuable as a higher price. If you're using SBA financing, be transparent about the timeline and show that you've already started the pre-qualification process.

What Sellers Are Thinking About Your Financing

Sellers evaluate financing credibility in a simple hierarchy:

1. Pre-approved SBA loan with a specific lender: strongest signal short of cash
2. Cash with proof of funds: very strong, but sellers sometimes wonder why you're not using leverage
3. Pre-qualified for SBA (no specific lender yet): good, shows you've done the homework
4. "I have the resources" (vague): weak, sellers have heard this before from buyers who couldn't close
5. No mention of financing: worst position, suggests the buyer hasn't thought about it

In direct conversations on Rejigg, we see sellers move faster with buyers who demonstrate financing readiness in their very first message. You don't need to share bank statements upfront. But saying "I'm pre-qualified for up to $3.5M in SBA financing through [Bank Name] and have $400K in personal equity" tells the seller everything they need to know.

Making Your Offer Stronger Through Financing

Your financing plan is part of your offer, not just a detail to work out later. Two offers at the same price can look very different to a seller:

Offer A: $2.5M, all SBA, 90-day close, buyer just started talking to lenders.

Offer B: $2.5M, SBA pre-approved for $2M, $350K buyer equity, $150K seller note at 6% over 4 years, 75-day close.

Offer B wins every time. The financing is specific, the timeline is realistic, and the seller note shows the buyer expects the seller to have skin in the game during the transition.

The SBA loan calculator on Rejigg helps you model different combinations so you can present a specific, credible financing plan with your first offer.

Frequently Asked Questions

How much cash do I need to buy a $2M business?

Plan for 10-20% of the purchase price as your equity contribution, so $200K-$400K for a $2M business. This can come from personal savings, retirement rollovers (ROBS), or equity partners. SBA lenders want to see that you have personal capital at risk, not just borrowed funds. The exact requirement depends on the lender and the business's cash flow.

Can I buy a business with no money down?

Practically, no. SBA lenders require a minimum equity injection, typically 10% of the total project cost. Some buyers reduce their cash needed through ROBS or equity partners, but zero-down business acquisitions are essentially a myth. Sellers and lenders both want to see that you have real capital committed to the deal.

How long does SBA financing take?

60-90 days from application to funding is typical. The process includes lender underwriting, SBA approval, third-party valuations, and legal document preparation. Start your SBA pre-qualification before you make offers. Buyers who wait until after signing a letter of intent often miss their closing deadlines, which damages trust with the seller.

Should I ask the seller to carry a note?

Yes, in most cases. Seller financing is common in small business acquisitions and benefits both parties.

For the buyer, it bridges financing gaps and keeps the seller engaged during the transition. For the seller, it provides interest income and potential tax advantages. A typical ask is 5-15% of the purchase price at 5-8% interest over 3-5 years.

What makes a financing plan look credible to sellers?

Specificity. Name your lender, state your pre-qualification amount, specify your equity contribution, and propose a realistic closing timeline. Sellers have seen dozens of buyers say "I have the resources" and then disappear when it's time to show proof. The more concrete details you share early, the more seriously the seller takes your offer.