Buying a Business and Its Building With an SBA Loan
Under SOP 50 10 8.1 this is Initial Acquisition. Down payment: 10%, cannot be reduced. Minimum debt service coverage: 1.25 to 1. Quality of earnings report: not required. The seller after closing: consultant only, up to 24 months.
The deal
A buyer with no stake in the business agrees to pay $3,600,000 for a business and the building it operates from: $2,400,000 for the business and $1,200,000 for the real estate. The buyer will occupy the whole building.
- Who is buying: A new owner with no stake in the business today
- Business purchase price: $2,400,000
- Real estate bought with it: $1,200,000
- Close relationship between buyer and seller: no
What SBA requires here
SBA category
Initial Acquisition
A new owner who was not already an owner or a 24-month employee: Initial Acquisition, the default category.
Loan term
About 15 years blended, or two loans
Only the real estate share can go past 10 years, up to 25. On $2,400,000 of business and $1,200,000 of real estate the weighted average rounds to 15 years; closing costs and working capital are allocated 10 years too, so the full blend, worked out before the down payment is applied, comes out a little lower. The other option is two loans: one for the business on 10 years and one for the real estate (including a 504). A special purpose property that is integral to the business can put the whole loan on up to 25 years when 85% or more of the project is real estate.
SOP 50 10 8.1, Appendix 15 (Loan Maturities)
| Down payment | 10%, cannot be reduced |
|---|---|
| What can count toward it | Half can be a seller note |
| Minimum debt service coverage | 1.25 to 1 |
| Business valuation | Independent valuation required |
| Quality of earnings report | Not required |
| The seller after closing | Consultant only, up to 24 months |
| Who signs the loan | You and the business, together |
| 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 deal with no building, run through the same rules.
| This deal | Business only | |
|---|---|---|
| SBA category | Initial Acquisition | Initial Acquisition |
| Down payment | 10%, cannot be reduced | 10%, cannot be reduced |
| Minimum debt service coverage | 1.25 to 1 | 1.25 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 | About 15 years blended, or two loans | Up to 10 years |
| Who signs the loan | You and the business, together | You and the business, together |
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
Initial Acquisition
A new owner who was not already an owner or a 24-month employee: Initial Acquisition, the default category.
- Down payment
- 10%, cannot be reduced
- What can count toward it
- Half can be a seller note
- Minimum debt service coverage
- 1.25 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
- About 15 years blended, or two loans
- Who signs the loan
- You and the business, together
- Collateral
- Business assets, then personal real estate
At least 10% of the total project cost: the price plus closing costs, the guaranty fee and any working capital, not the price alone. It cannot be reduced or waived. The real estate bought with the business is subject to the same requirement.
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 1.25 times, using the last fiscal year end or the average of the last two.
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. The real estate is not part of the business valuation; it is valued separately by a commercial real estate appraisal.
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. The business purchase price leaves out owner-occupied real estate, so the $1,200,000 of real estate does not count toward the $3 million, even though the whole deal is $3,600,000.
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)
Only the real estate share can go past 10 years, up to 25. On $2,400,000 of business and $1,200,000 of real estate the weighted average rounds to 15 years; closing costs and working capital are allocated 10 years too, so the full blend, worked out before the down payment is applied, comes out a little lower. The other option is two loans: one for the business on 10 years and one for the real estate (including a 504). A special purpose property that is integral to the business can put the whole loan on up to 25 years when 85% or more of the project is real estate.
SOP 50 10 8.1, Appendix 15 (Loan Maturities)
A 7(a) loan cannot be made to an individual alone. A person buying 100% of the shares signs as a Co-Borrower with the business, jointly and severally. If a company you form buys the business, that company is the Borrower, with the business you buy as Co-Borrower if it stays a separate entity.
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
- 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 buying a business with its real estate?
Initial Acquisition. A new owner who was not already an owner or a 24-month employee: Initial Acquisition, the default category.
How much down payment does buying a business with its real estate need?
10%, cannot be reduced. At least 10% of the total project cost: the price plus closing costs, the guaranty fee and any working capital, not the price alone. It cannot be reduced or waived. The real estate bought with the business is subject to the same requirement.
What debt service coverage does the lender need for buying a business with its real estate?
1.25 to 1. The business has to cover its debt payments 1.25 times, using the last fiscal year end or the average of the last two.
Does buying a business with its real estate need a quality of earnings report?
Not required. Required only at a business purchase price of $3 million or more. The business purchase price leaves out owner-occupied real estate, so the $1,200,000 of real estate does not count toward the $3 million, even though the whole deal is $3,600,000.
Can the seller stay on after buying a business with its real estate?
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.