The SBA 7(a) loan program is the SBA’s primary vehicle for financing business purchases. Under SBA’s new Standard Operating Procedures (SOP 50 10 8, effective June 1, 2025), many pre-2021 rules have returned, tightening underwriting and clarifying eligibility. In a 7(a) acquisition loan, a participating lender (bank, credit union, or other SBA-approved lender) provides the funds, and the SBA guarantees a portion (typically 75–85%) of the loan. These loans can cover both the purchase price of a business and related needs (working capital, debt refinancing, equipment, etc.). Buyers typically must inject at least 10% of the purchase price in cash or standby seller financing. The SBA guarantee lowers lender risk, enabling longer terms and lower down payments than conventional financing. Many business owners and banks want to see buyers have a higher down payment than 10% to make the business more stable after the sale takes place. SOP 50 10 8: Underwriting and Eligibility Changes SOP 50 10 8 reinstates strict SBA underwriting rules that had been relaxed during 2020–2024. Key changes include:

• Rigid criteria return. The SBA has “removed strict personal liquidity thresholds” but shifted to a holistic cash-flow analysis. Instead of disqualifying a borrower for high net worth or other assets, lenders now count all income sources (spouse’s salary, rental income, investments, etc.) when evaluating repayment ability. The focus is on global cash flow, not penalizing successful borrowers for having assets.
• Lender authority and “credit elsewhere.” Lenders are again charged with determining eligibility and underwriting the loan. The old “do what you do” shortcut is gone – SBA guidelines must be followed. In particular, lenders must resume the credit elsewhere test (ensuring the borrower could not obtain similar credit elsewhere). Tax-transcript verification, collateral requirements, insurance, and minimum life insurance rules are reinstated. (For example, borrowers need to prove necessary insurance and provide tax transcripts for all loans.)
• Equity injection and startup rules. For any startup or new venture, a minimum 10% cash injection is mandatory again. In practice, even existing-business acquisitions usually require a 10% down payment, which can include a seller note if properly structured (see below).
• Partial-change and rollover equity. SBA tightened rules on seller equity. All new owners – including any minority rollover seller – must be co-borrowers, and any seller retaining under 20% of the business must personally guarantee the full loan for at least two years. Partial buy-outs must now be structured as stock purchases, not asset deals, to ensure continuity of obligations. Multi-step buy-ins or management agreements now face strict scrutiny. (In short, SBA wants every party “skin in the game.”)
• Seller-note conditions. Under SOP 50 10 8, a seller’s promissory note can count toward the buyer’s 10% equity injection – but only if it meets new conditions. The note must be on full standby for the entire loan term (no principal or interest payments during that period, but interest can accrue during this time) and may represent no more than 50% of the total injection. This means, for a required $100K injection, at most $50K can come from a seller note, and only if the seller agrees to wait (and defer all payments) while the SBA loan is outstanding.

Together, these changes tighten underwriting. Lenders will again follow SBA’s SOP criteria on credit, collateral, and personal. Borrowers should expect more documentation and scrutiny. On the plus side, eliminating the “too rich to borrow” test makes high-net-worth buyers more eligible, and allowing CPA-prepared financials (rather than tax returns) in complex acquisitions may ease analysis. Structuring 7(a) Loans: With vs. Without Real Estate An SBA 7(a) loan can finance the purchase of a business with or without real estate, and the structure differs accordingly:

• Without Real Estate: If the deal involves only business assets (goodwill, equipment, inventory, working capital, etc.), the 7(a) loan is typically a single note covering all eligible costs. The SBA allows up to a 10-year amortization for such loans (since no real estate is collateral). Interest is usually variable (tied to WSJ Prime) and negotiated between the lender and the borrower. Funds can cover inventory buildup or working capital needs as part of the loan proceeds.
• With Real Estate: If the business purchase includes owner-occupied real estate, the loan can include the land/buildings. In that case, SBA rules permit up to a 25-year term for the portion used to buy or improve real property. Lenders commonly structure one combined SBA loan but amortize it over a 25-year period, which lowers monthly payments. The portion of the loan attributable to equipment or inventory still counts as a 7(a) use, but the extended term benefits the entire loan. Interest on the real-estate portion is often fixed (reflecting the longer term), while the rest may still be structured on a variable basis. Including real estate can also raise the collateral value, often making the lender more comfortable financing a higher percentage of the deal.

The choice of structure affects borrower costs. For example, amortizing a large loan over 25 years instead of 10 years can cut monthly payments roughly in half (for the same loan amount), improving cash flow. However, longer amortization means higher overall interest paid. Many borrowers include real property in the 7(a) loan to take advantage of this 25-year term. If a borrower chooses not to include real estate or there is no property involved, the loan must fully amortize within 10 years (plus a short construction period, if any). Loan Terms: Interest Rates and Amortization SBA 7(a) loans feature competitive but negotiated terms:

• Amortization and Term: As noted, loans without real estate are typically amortized up to 10 years, while those including property can be stretched to 25 years. In all cases, the lender will choose the “shortest appropriate” term based on the type of asset and repayment ability. There are no fixed terms by program – it depends on collateral life.
• Interest Rates: SBA loans may be fixed- or variable-rate, subject to SBA maximums. The rate is negotiated but capped relative to a base rate (usually WSJ Prime). Currently, SBA’s published maximum variable rates range from Base+6.5% for very small loans (under $50K) down to Base+3.0% for loans over $350K. In practice, many larger acquisition loans are priced around Prime + 2.75% (if variable), meaning roughly mid- to high-single-digit rates today. Lenders may charge a fixed rate (often tied to Treasury yields) for long-term real-estate loans. Importantly, SBA 7(a) interest is generally tax-deductible business interest for the buyer.
• Fees: SBA loans carry guaranty fees (paid by the borrower) and an annual service fee. For loans above $150K, the guaranty fee is 3.5% of the guaranteed portion (for most lenders), added to closing costs. These fees enable the SBA’s 75–85% guarantee.

In short, a 7(a) acquisition loan often has a longer amortization and slightly higher interest than a conventional mortgage (due to government guarantee fees and risk), but it allows much higher leverage than an unaided business loan. Buyers typically see 7(a) rates in the 7–10% range (varies by market and credit), with payment schedules well under 10 years if no real estate is involved. Including real estate can reduce monthly costs significantly by extending payments up to 25 years. Example Acquisitions: $1,000,000 and $7,000,000 Purchases Example 1: $1,000,000 Purchase (No Real Estate). Suppose a buyer plans to pay $1,000,000 for a business. SBA requires about 10% equity injection (cash or equivalent) – say $100,000 – from the buyer. The SBA could then finance the remaining $900,000 with a 7(a) loan (subject to lender approval). This $900K loan might amortize over 10 years at a variable rate (for example, Prime+3%). Under SBA’s guarantee rules, the agency would guarantee 75% of the loan (since $900K>$150K), i.e. $675,000. The buyer’s $100K down plus any seller note (if used) would cover the rest. The proceeds could include, for instance, $700K for goodwill/equipment and $200K for inventory or working capital. With a 10-year amortization, the monthly payment might be on the order of $11–12K (varying with rate). If this same $1M purchase did include owner-occupied real estate, the $900K SBA loan could instead be stretched to 25 years. In that case the payment would drop to roughly $5–6K/month on the same balance (saving cash flow), though interest would accrue longer. The SBA guarantee (75%) would remain unchanged. Example 2: $7,000,000 Purchase (Mixed Financing). For a larger deal, SBA’s program limits come into play. The maximum 7(a) loan is $5,000,000. The rest must be financed another way. With a 10% down requirement, the buyer would need to inject about $700,000 in cash. That leaves $6,300,000 to fund. The SBA portion would cover $5,000,000 (its cap) and guarantee 75% of it ($3.75M). The remaining $1,300,000 must come from other sources or buyer could make a larger down payment. A common structure might be: Buyer cash $1,050,000 (15%) – plus a $5.0M SBA loan, plus a $950K conventional loan or seller note (not on standby because the buyer put down more than 10% for a down payment) for the balance. If the buyer made a down payment of less than 10% then the seller note up to the 10% would be on full standby for the life of the loan (no payments for, say, 10 years). The conventional tranche (e.g. a bank loan or seller note not on standby) would carry no SBA guarantee. The SBA guarantee still applies 75% to its $5M portion, i.e. $3.75M. This blended financing (7(a) + conventional or seller note) lets the buyer reach the full $7M. Working capital can also be included. For instance, if out of the $7M price, $2M is allocated to inventory and working capital, the same financing structure can apply: the SBA loan and the conventional loan would cover both the purchase of business assets and the needed working capital on Day 1. Seller Financing Rules Seller financing (a seller note) can help bridge gaps or meet injection requirements, but SOP 50 10 8 imposes strict conditions:

• Standby requirement: To count as SBA-required equity injection, a seller note must be on full standby for the life of the SBA loan. “Full standby” means the seller receives no principal or interest payments until the SBA loan is fully repaid. (In practice, some sellers accept a few years’ deferral, but SBA now requires deferral for the entire term if the note is counted as down payment.)
• 50% cap: The seller note cannot exceed 50% of the required injection. For example, if a 10% injection is $100,000, at most $50,000 of that may be a seller note (on standby), and the rest must be cash or other equity.
• Guarantees and subordination: SBA requires the seller note to be subordinate to the SBA loan, and the buyer must not make any seller payments if the SBA loan is in default. The seller typically must sign a Standby Agreement (SBA Form 155) that documents these terms. In addition, any seller who retains a small stake (under 20%) must personally guarantee the SBA loan for two years.

Many sellers resist these terms. Deferring payments for a decade means the seller waits a long time to be paid, and subordination means the seller only gets paid after the SBA debt. As one SBA advisor notes, “a seller may be reluctant to accept these terms, but they are requisite for… SBA financing for undercapitalized buyers”. In other words, sellers know that banks require subordination and at least short deferral to protect the primary lender, and SBA’s full-standby rule takes this further. Buyers must negotiate carefully: a seller willing to accept a full-term standby note (and possibly a 2-year guarantee) can dramatically reduce the buyer’s cash down payment, but many sellers prefer some current payments and may demand a higher price or interest rate. SBA Guarantee and Loan Limits Key SBA limits and guarantees are:

• Maximum loan amount: The 7(a) program caps loans at $5,000,000. (SBA Express, a streamlined subset, caps at $500,000.) No matter the purchase price, the SBA-insured portion cannot exceed this cap.
• Guarantee percentage: For standard 7(a) loans, SBA guarantees 75% of the bank’s loan on amounts over $150,000 (and 85% on the first $150,000). Thus, on a $5,000,000 loan the SBA guarantee is $3,750,000 (75% of $5M). If a loan is smaller (≤$150K), the guarantee goes up to 85% of that amount. (Certain special programs like Export loans have 90% guarantees, but standard acquisitions use 75/85%.)
• Exceeding limits – blending: When a transaction exceeds SBA limits, lenders “blend” with conventional debt. For example, a $7M acquisition might use a $5M SBA loan plus a $2M conventional mortgage (or other bank loan). The conventional portion would not be guaranteed by the SBA. The buyer must also provide more cash or equity to cover the excess. In some cases, buyers split the deal, using SBA for up to $5M of the price and arranging other financing (or seller financing) for the balance.
• Equity strategy: Because SBA’s guarantee is limited, buyers should maximize the SBA portion up to $5M. Any shortfall is often filled by conventional lenders at market terms (which usually means higher down payment or equity). SBA rules still require at least 10% injection even if the purchase is under $5M. If a buyer wants to finance, say, 90% of the purchase with SBA, they must meet all SBA criteria (including standby notes, guarantees, etc.), otherwise they will need to provide more cash or partner equity.

Lenders and SBA Guarantees SBA 7(a) loans are made by banks and other lenders, not directly by the government. Borrowers apply through an SBA-approved lender – typically a commercial bank, credit union or specialty small-business lender. The SBA’s role is to guarantee a portion of the loan against loss. In essence, the government acts as an insurance backstop, which gives lenders confidence to lend more aggressively. As one lender explains, “the loan is backed by the SBA, but it’s actually funded by a participating bank or approved SBA lender”. The SBA guarantees allow lenders to offer longer terms and more flexible underwriting than they would without the guarantee. In summary, under SOP 50 10 8 a small-business buyer can use an SBA 7(a) loan to fund the purchase of an existing business. The new SOP imposes tighter underwriting (reinstating the credit-elsewhere test, requiring strict standby for seller notes, etc.), but the core benefits remain: financing up to $5M with a low down payment (10%), extended terms (especially if real estate is included), and a government guarantee on the loan. Buyers and their advisors should plan carefully: structure the deal to meet SBA’s updated rules, ensure all owners and sellers are properly on the loan (as co-borrowers or guarantors), and be prepared for the balance of any funding to come from conventional sources if the deal price exceeds SBA limits.