How to Find a Business to Buy (and Know Early If It Can Be Financed)

Most first-time buyers spend months looking at listings and then discover, after an offer is accepted, that the business they chose cannot be financed at the price they agreed. The search and the financing are usually treated as two separate projects. They are one project, and running them together saves the most time.

Where businesses for sale actually come from

Listing marketplaces are where most buyers start, and they are worth watching, but the businesses on them are the ones a seller decided to advertise widely. A large share of good small businesses change hands without ever being listed publicly.

Business brokers hold most of the listed inventory, and a broker who knows you are a serious, financeable buyer will call you before a listing goes wide. Introduce yourself, say what you are looking for in a sentence, and show that you have the down payment and the experience. Brokers prioritize buyers who can close.

Direct outreach works better than most buyers expect. Owners in their sixties with no family successor are the largest pool of future sellers, and many have never spoken to a broker. A short, specific letter (what you want to buy, why their business, that you would keep the staff and the name) gets answered.

Accountants, attorneys and bankers who serve small businesses hear about sales first. So do franchisors: most brands keep a list of franchisees who want to sell, and a franchise resale comes with a track record a new unit does not.

Screen a listing in an afternoon

Before you sign a non-disclosure agreement and request the full package, you can learn most of what you need from the listing and a short call.

Start with cash flow, usually shown as seller's discretionary earnings (SDE): what the business earns for one full-time owner. Then the asking price. Then ask yourself whether you could run it, and whether a lender would believe you could. Lenders put a lot of weight on relevant experience, in the industry or in managing the same kind of operation.

Ask why the owner is selling, how much of the revenue comes from the largest few customers, whether the lease can be assigned or renewed, and how involved the owner is day to day. A business where the owner is the business is harder to buy and harder to finance.

Three numbers that tell you if it can be financed

An SBA lender sizes a business purchase from three numbers, and you can run a rough version of each yourself.

The first is the down payment. For buying a business, the SBA minimum is 10% of the total project, which includes closing costs and working capital as well as the price, and it cannot be reduced for a first acquisition (the rule is on our SBA down payment page). A seller note can cover up to half of that 10% only if it is on full standby, meaning no payments of principal or interest for the life of the SBA loan (the seller note rule). Our down payment examples show what that comes to at common prices.

The second is the payment. Business purchases are usually financed over 10 years. Put the loan amount into the payment calculator to see the monthly figure.

The third is coverage. Lenders compare the cash the business has left after paying a reasonable salary to the new owner against the annual loan payments. They commonly look for at least 1.25 times coverage. If the listing's cash flow does not cover the payments with room to spare at the asking price, the price is the problem, and it is better to know that before you make an offer.

Before you make an offer

Check the business is eligible. Most operating businesses are, but some types are not, and franchises have to be on the SBA Franchise Directory (the franchise rule). Our franchise pages show how often each brand has been SBA financed.

Then talk to a lender, or to us, before you sign a letter of intent. A one-page summary (the listing, the last three years of the business's tax returns if you have them, and your resume) is enough for an early read on whether the deal works and what it will take. It is free, and it is the cheapest point in the whole process to find out.