Financing Resources
Options for funding your business purchase
Most people don't have enough cash to buy a business outright. The good news is there are several financing options available. This guide covers the main ways to fund a business purchase.
Seller Financing
Seller financing is when the current owner loans you part of the purchase price. This is one of the most common ways to buy a small business, and it's often the easiest to arrange.
Here's how it typically works: You put down 20–30% of the purchase price, and the seller finances the rest. You make monthly payments over 3–7 years, usually with interest.
Why sellers do it
Makes their business more attractive and spreads out their tax liability over multiple years.
Why it's good for buyers
Easier to qualify than bank loans, faster to arrange, and often more flexible terms.
What to watch for
Make sure the interest rate is reasonable (typically 4–8%) and understand default terms.
Bank Loans
Traditional business loans from banks are another option, though they can be harder to get approved. Interest rates are usually 6–10%, with terms of 5–10 years. The approval process can take 30–90 days.
Banks typically require:
- Good credit score (usually 680 or higher)
- Down payment of 20–30%
- Strong financials from the business you're buying
- Personal guarantee
- Collateral
SBA Loans
The Small Business Administration (SBA) guarantees loans made by banks to small business buyers. This reduces the bank's risk, making it easier for you to get approved.
SBA loan advantages:
- Lower down payment requirements (usually 10% instead of 20–30%)
- Longer repayment terms (up to 10 years for equipment, 25 years for real estate)
- Competitive interest rates
- Can be used for working capital, not just the purchase price
The most common SBA loan for business purchases is the 7(a) loan program1. Maximum loan amount is $5 million. Expect the process to take 60–90 days. Look for SBA Preferred Lenders for faster approval.
Alternative Lenders
Online lenders and alternative financing companies offer more flexibility with credit requirements and faster approvals. However, interest rates are typically 10–25% with shorter terms (1–5 years).
This can be a good option if you need financing quickly or don't qualify for traditional loans, but make sure you can afford the payments. High interest rates can strain cash flow.
Investors and Partners
Bringing in investors or partners is another way to fund a purchase. They provide capital in exchange for ownership in the business.
This can work well if:
- You need more capital than you can borrow
- You want partners with business experience
- You're comfortable sharing ownership and decision-making
Be clear about roles, responsibilities, and how decisions will be made. Get everything in writing with a partnership or operating agreement.
Home Equity and Personal Assets
Some buyers use home equity loans or lines of credit to fund part of the purchase. Interest rates are usually lower than business loans — but you're putting your personal assets at risk. If the business fails, you could lose your home.
401(k) Rollover (ROBS)
Rollovers for Business Startups (ROBS) lets you use retirement funds to buy a business without paying early withdrawal penalties or taxes2.
This is complex and requires setting up a C-corporation and a qualified retirement plan. You'll need professional help from a ROBS provider. It's not for everyone — you're risking your retirement savings.
Combining Financing Sources
Many buyers combine multiple financing sources. For example:
- 20% down payment from personal savings
- 50% from bank or SBA loan
- 30% seller financing
This approach gives you flexibility and can make the deal work when one source alone wouldn't be enough. Our poll data on how buyers actually finance acquisitions shows that seller financing is the dominant method in practice.
What Lenders Look For
Strong business financials: Consistent revenue, real profits, and positive cash flow. They'll want at least 2–3 years of financial records.
Your ability to run the business: Relevant experience, education, or a solid plan for learning.
Good credit: Your personal credit score matters, especially for bank loans. Pay down debt and fix any errors before applying.
Realistic projections: Lenders want to see the business can cover loan payments and still leave you with income.
Red Flags to Avoid
- Upfront fees: Legitimate lenders don't charge fees before approving a loan.
- Guaranteed approval: No legitimate lender guarantees approval without reviewing your application.
- Pressure to act quickly: Take time to understand terms and compare options.
- Unusually high interest rates: If rates are much higher than market rates, be suspicious.
Getting Started
Start exploring financing options early, even before you find the business you want to buy. Getting pre-approved can make you a more attractive buyer and speed up the process once you find the right business.
Talk to multiple lenders to compare rates and terms. Don't just go with the first offer. Small differences in interest rates can add up to thousands of dollars over the life of the loan.
Don't forget to factor in broker fees when budgeting your total acquisition cost. A broker's commission can add tens of thousands to the deal — see how much brokers typically charge and how that affects what you need to finance.
Next Steps
Ready to start looking for a business? Browse our listings to see what's available. When you find businesses you're interested in, ask about financing options during your initial conversations.
For more information on buying a business, check out our Buyer's Guide.
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1 U.S. Small Business Administration. "7(a) Loans." SBA.gov. https://www.sba.gov/funding-programs/loans/7a-loans
2 Guidant Financial. "ROBS: Rollovers for Business Startups." GuidantFinancial.com. https://www.guidantfinancial.com/financing-solutions/401k-business-financing/