SBA 7(a) Loan Qualification for Business Acquisitions

• Credit. A 680+ FICO is the practical floor at most SBA-preferred lenders. Below that, expect a decline or a conventional-only path.
• Relevant experience. The SBA doesn't require industry experience by rule, but lenders do. Direct operating experience, or a documented management transition plan with the seller, is what committees look for.
• Equity injection. 10% of the total project cost minimum. At least half must be from the buyer's own non-borrowed funds; the remainder can be a seller note on full standby (no principal or interest for 24 months).
• Global cash flow. The buyer's household income, existing debts, and the new business debt are all combined. Weak personal cash flow can sink an otherwise strong deal.
• Collateral. Personal guarantees are required from anyone owning 20% or more. Available collateral (typically a primary residence with equity) is pledged when the business assets don't fully secure the loan.

• Debt service coverage ratio (DSCR). Underwriting wants 1.25x or better on a stressed basis - post-close cash flow divided by new annual debt service. Anything under 1.15x is a hard no; 1.15–1.25x needs a structural fix (longer term, seller note, price reduction).
• Three years of trending, reconciled financials. Tax returns and internal statements that tie. A single unexplained down year is manageable; two in a row is a problem.
• Transferability. Owner-dependent revenue, non-assignable customer contracts, non-transferable licenses, and key-person concentration all show up as reasons to decline or restructure.
• Eligibility. The business must meet SBA size standards, be for-profit, U.S.-based, and in an eligible industry. Real estate holding companies, lending businesses, and certain passive investments don't qualify.

Sellers rarely think of themselves as being underwritten. They are.

• Full exit is standard. The SBA allows a limited transition period, but the seller cannot remain as an owner, employee, or contractor past 12 months post-close without jeopardizing eligibility.
• Seller financing structure. If a seller note is counting toward the buyer's equity injection, it must be on full standby for 24 months. Notes with earlier payments don't count as equity.
• Clean books. Aggressive add-backs, cash sales off the books, or unreconciled tax returns will be stripped out by the lender. The purchase price is then re-tested against the reduced SDE - and often fails DSCR.

Most fundable Main Street acquisitions land in this shape:

• 10-year term, fully amortizing, no balloon.
• Prime + 2.5–3.0% variable (subject to current SBA caps).
• 10% total equity injection (buyer + standby seller note).
• DSCR of 1.30x+ on trailing-twelve-months SDE.
• Personal guarantee from all 20%+ owners, plus available real estate collateral.

Buyers: get a soft pre-qualification from an SBA-preferred lender with the deal's target price range plugged in. Sellers: run the same math on your own numbers. If a realistic buyer can't service the debt at your ask, the price needs to change before the LOI - not during due diligence.