Business Expansion With No Down Payment
Under SOP 50 10 8.1 this is Business Expansion. Down payment: 10%, lender may reduce or waive. Minimum debt service coverage: 1.15 to 1. Quality of earnings report: not required. The seller after closing: consultant only, up to 24 months.
The deal
A dental practice that has run under the same owner for four full fiscal years agrees to buy 100% of another dental practice for $1,000,000. The buying practice has cash in the bank and a positive net worth on its last year-end balance sheet, and asks the lender to waive the 10%.
- Who is buying: An existing operating business
- Business purchase price: $1,000,000
- Two full fiscal years under current owners: yes
- Same four-digit NAICS industry group: yes
- Buying 100%: yes
- Negative net worth at the last fiscal year end: no
- Close relationship between buyer and seller: no
What SBA requires here
SBA category
Business Expansion
An existing business, operating two full fiscal years under its current owners, buying 100% of a business in the same four-digit NAICS industry group.
Down payment
10%, lender may reduce or waive
At least 10% of the total project cost. The lender may reduce or eliminate it if the borrower has enough liquidity and working capital to run the business after the transaction, and the balance sheet was not negative at the last fiscal year end.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Equity Requirements)
| What can count toward it | Half can be a seller note |
|---|---|
| Minimum debt service coverage | 1.15 to 1 |
| Business valuation | Independent valuation required |
| Quality of earnings report | Not required |
| The seller after closing | Consultant only, up to 24 months |
| Loan term | Up to 10 years |
| Who signs the loan | Your operating business |
| Collateral | Business assets, then personal real estate |
Each answer is explained, with its SOP 50 10 8.1 citation, in the structurer below.
What changes if one answer is different
The same practice with a negative net worth at its last year end, run through the same rules.
| This deal | Negative net worth | |
|---|---|---|
| SBA category | Business Expansion | Business Expansion |
| Down payment | 10%, lender may reduce or waive | 10%, cannot be waived here |
| Minimum debt service coverage | 1.15 to 1 | 1.15 to 1 |
| Business valuation | Independent valuation required | Independent valuation required |
| Quality of earnings report | Not required | Not required |
| The seller after closing | Consultant only, up to 24 months | Consultant only, up to 24 months |
| Loan term | Up to 10 years | Up to 10 years |
| Who signs the loan | Your operating business | Your operating business |
Change the answers
The structurer below is loaded with this deal. Change any answer to see how the SBA rules move. Open the full change of ownership calculator.
SBA category
Business Expansion
An existing business, operating two full fiscal years under its current owners, buying 100% of a business in the same four-digit NAICS industry group.
- Down payment
- 10%, lender may reduce or waive
- What can count toward it
- Half can be a seller note
- Minimum debt service coverage
- 1.15 to 1
- Business valuation
- Independent valuation required
- Quality of earnings report
- Not required
- The seller after closing
- Consultant only, up to 24 months
- Loan term
- Up to 10 years
- Who signs the loan
- Your operating business
- Collateral
- Business assets, then personal real estate
At least 10% of the total project cost. The lender may reduce or eliminate it if the borrower has enough liquidity and working capital to run the business after the transaction, and the balance sheet was not negative at the last fiscal year end.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Equity Requirements)
Cash that is not borrowed (including a gift) counts in full. A seller note or other debt on full standby (no principal or interest for the life of the SBA loan) and minority investors (under 20%, no control) can together cover no more than half.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Source of Equity Injections)
The business has to cover its debt payments 1.15 times, using the last fiscal year end or the average of the last two. Business Expansion is the only category at 1.15.
SOP 50 10 8.1, Appendix 15, Para. C.2 (Lender's Credit Analysis)
An independent valuation by an accredited Qualified Source, prepared for the lender (not for the buyer or seller). If the price is above the valuation, the difference has to be made up with equity.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Business Valuation Requirements)
Required only at a business purchase price of $3 million or more.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Quality of Earnings)
The seller cannot stay as an owner, officer, director or employee, but the business can hire them as a consultant for up to 24 months in total.
SOP 50 10 8.1, Appendix 15, Para. A (Change of Ownership Requirements)
A loan that finances a change of ownership cannot amortize over more than 10 years, and cannot have a balloon. Only owner-occupied real estate bought in the same deal can go longer.
SOP 50 10 8.1, Appendix 15 (Loan Maturities)
The buying business is the Borrower. If the business you buy keeps operating as a separate entity, the two are Co-Borrowers.
SOP 50 10 8.1, Appendix 15 (Types of Changes of Ownership)
The lender takes a lien on everything bought (vehicles have their own rule) and on the business's fixed assets. If they do not cover the loan, it must take available equity in personal real estate (home, investment property and other commercial property) solely owned by each Co-Borrower, owner of 20% or more and guarantor. Property with less than 25% equity is not required, and the lien can be limited to the shortfall.
SOP 50 10 8.1, Appendix 15 (Collateral)
Watch for
- If the lender waives the down payment, the loan cannot include dedicated permanent working capital, in this or any other 7(a) term loan, for 90 days. Working capital has to come from existing cash or a line of credit.
- Seller earnouts are prohibited. A working capital true-up at closing and rebates from the seller to the buyer are allowed.
SBA minimums from SOP 50 10 8.1 (effective October 1, 2026). Lenders can ask for more. General information, not a loan approval or legal advice. More SBA rules, answered.
Questions
What SBA change of ownership category is a business expansion with no down payment?
Business Expansion. An existing business, operating two full fiscal years under its current owners, buying 100% of a business in the same four-digit NAICS industry group.
How much down payment does a business expansion with no down payment need?
10%, lender may reduce or waive. At least 10% of the total project cost. The lender may reduce or eliminate it if the borrower has enough liquidity and working capital to run the business after the transaction, and the balance sheet was not negative at the last fiscal year end.
What debt service coverage does the lender need for a business expansion with no down payment?
1.15 to 1. The business has to cover its debt payments 1.15 times, using the last fiscal year end or the average of the last two. Business Expansion is the only category at 1.15.
Does a business expansion with no down payment need a quality of earnings report?
Not required. Required only at a business purchase price of $3 million or more.
Can the seller stay on after a business expansion with no down payment?
Consultant only, up to 24 months. The seller cannot stay as an owner, officer, director or employee, but the business can hire them as a consultant for up to 24 months in total.
SBA minimums from SOP 50 10 8.1 (effective October 1, 2026), Appendix 15. Lenders can ask for more. General information, not a loan approval or legal advice.