That seems accurate. So would you say other lending products are much better?

To provide some clarification here, when you do a full business acquisition under the SBA 7A loan program the required equity is 10% of the purchase price. However, if you have a seller note on fully standby or interest only for two years for 10% or more of the purchase price, you can get away with as little as 0% down by the SBA rules, but in most cases lenders will go down to 2.5% to 5% down.

When you do a partial business acquisition under the SBA 7A loan program, the required down payment is still 10%, but that is based on the portion of the business you are buying. So if you value the business at $1 million but are only buying 85% of the business, you are buying $850,000 and you would be putting down 10% on $850,000 or $85,000. So you are not putting equity down on the portion you are not buying. Now you cannot have seller notes represent part of your required equity in a partial business acquisition. However, the SBA does allow you to use equity already on the business balance sheet to offset some of or potentially all of the required down payment. If the balance sheet at the most immediately fiscal year-end and most recent month before provides for a debt to net worth ratio of 9 times or less after layering in the new debt being funded as part of the acquisition, then technically you can finance 100% of the action via an SBA 7A loan. However, most lenders are still requiring some minimum amount of borrower equity of 2.5% to 5% to be sure the new buyer has skin in the game, and of course the cash flow needs to work with the higher leverage amount.

If you have additional questions about equity requirements, seller notes, etc., we are always happy to answer them. You can reach me here or directly at redacted