Who this guide is for

This guide is written for owners who already run an established business and want to buy another one. Common examples:

• A dental or medical practice buying a retiring colleague’s practice
• An auto repair shop buying a competitor across town
• A distributor buying a smaller rival to gain its customer list
• A contractor buying a firm with a license or specialty it lacks
• A restaurant group buying an existing restaurant with a lease in place

An operating buyer has an advantage. Lenders can see your revenue, your management record and your experience in the industry. That history supports the request in a way a purchase price alone cannot.

How acquisitions are financed

Few buyers pay the whole price from one source. A typical structure has layers:

1. Buyer’s cash. Lenders expect the buyer to put money into the deal. It shows commitment and lowers the amount financed.
2. Senior loan. A bank loan, SBA loan or Business Term Loans that covers the largest share.
3. Seller note. The seller agrees to be paid part of the price over time.
4. Working capital. A working capital loan or business line of credit to run the combined business after closing.

The deal itself is usually either an asset purchase, where you buy equipment, inventory, customer lists and the name, or a stock or membership purchase, where you buy the company itself with its contracts and obligations. The choice affects taxes and liability. Your attorney and CPA should guide it.

SBA 7(a) loans for acquisitions

The 7(a) program is the SBA’s primary business loan program. According to the SBA, 7(a) loans can be used for changes of ownership, complete or partial. Other listed uses include short- and long-term working capital, refinancing current business debt, and purchasing machinery, equipment, furniture, fixtures and supplies. A single 7(a) loan can serve more than one of these purposes.

Key facts from the SBA’s 7(a) page:

• The maximum loan amount for a 7(a) loan is $5 million.
• The SBA does not provide 7(a) loans directly to borrowers. It backs a portion of loans made by participating lenders. You apply through a lender and work with that lender, not with the SBA.
• To be eligible, a business must be an operating, for-profit business located in the U.S., be small under SBA size requirements, not be an ineligible business type, be unable to obtain the desired financing on reasonable terms elsewhere, and demonstrate a reasonable ability to repay.
• The contents of the application vary with the size of the loan and the lender’s process.

Through RAN Funding’s lender network, SBA loans go up to $10 million depending on the program and structure, typically take 30–60 days, and are built for businesses with 2+ years in business and $250,000+ in annual revenue shown on two years of business tax returns. Read more on our SBA loans page and in SBA loan vs term loan.

Seller notes in general terms

A seller note means the seller finances part of the price. Instead of receiving everything at closing, the seller is paid a portion over time by the buyer.

Why buyers like them:

• Less cash is needed at closing.
• The seller keeps a stake in a smooth handover.
• It signals that the seller believes the business will keep performing.

What to watch:

• The senior lender usually sets rules for the seller note, such as when payments on it can begin and that it ranks behind the main loan.
• The note adds to your total obligations. Count it in your cash flow test.
• Terms are negotiated. Have an attorney draft the note.

An earn-out is a related tool. Part of the price is paid later only if the business hits agreed targets. It can close a gap when buyer and seller disagree on value.

What lenders review: your business and the target

The buyer’s business

• Revenue and profit over the past two to three years
• Recent business bank statements and existing debt payments
• Business tax returns
• Your experience in the industry of the business you are buying
• The cash you will put into the deal

The target business

• Two to three years of tax returns and financial statements
• Year-to-date profit and loss and balance sheet
• Customer concentration: how much revenue depends on a few accounts
• How much the business depends on the current owner
• The lease, key contracts, licenses and any open liabilities
• The purchase agreement or letter of intent, and how the price was set

The core question is simple. Can the combined cash flow of both businesses cover all payments with room to spare? If the answer depends on optimistic growth, expect questions. See business loan requirements and why applications get declined.

A realistic timeline

The stage lengths above are general guides, not promises. Deals stall most often on missing documents from the seller. Ask for the full financial package early.

If speed matters, some established buyers use faster financing for smaller deals. Through our network, larger requests of up to $2 million can be funded in as little as 72 hours once approved. Faster funding usually costs more in total than bank or SBA financing, so compare the total amount repaid and the term. For most acquisitions, the slower route is the better match for a long-term asset.

Due-diligence checklist

• Match tax returns to bank deposits and financial statements
• Review revenue by customer for the past three years
• Confirm the lease can be assigned and how long it runs
• List all debts, liens and unpaid taxes, and confirm they are cleared at closing
• Review employee roles, pay and any agreements with key staff
• Check licenses, permits and any pending disputes
• Inspect equipment and count inventory
• Ask why the owner is selling and get a non-compete and transition period in writing
• Build a 12-month cash flow forecast for the combined business

Mistakes to avoid

• Paying for projected growth. Base the price on what the business earns now.
• Skipping post-closing working capital. The first 90 days bring payroll, inventory and surprises. Budget for them.
• Relying on the seller’s numbers alone. Have your CPA test them.
• Ignoring owner dependence. If customers follow the seller out the door, revenue goes with them.
• Neglecting your first business. Integration takes time. Make sure your current operation can run while you focus on the new one.
• Using short-term funding for the whole price. Match the term to the asset.

How RAN Funding fits

RAN Funding is a business financing company in Pembroke Pines, Florida. We arrange funding through a network of lenders and do not lend our own money. You complete one application for our lender network and work with one dedicated specialist who helps you decide which route fits the deal.

Our service is built for established businesses: most clients have 1+ year in business and $20,000+ in monthly revenue. A first review starts with a short application and the last 3 months of business bank statements (4 months in California, New York and Virginia). Acquisition and SBA requests need more, including tax returns and the target’s financials. Approval depends on each lender’s review. Call 1-877-522-6045, Monday–Friday 9am–6pm ET.

Common questions