Business Acquisition

Are you buying a franchise or small business?

Think Inside the LoanBox for Smarter Acquisition Loans

Buying a Business Loan

Acquiring an existing business or franchise is a strategic way to achieve your entrepreneurial dreams, and a buying a business loan provides the capital to make it happen. Whether purchasing a local company, a franchise, or a competitor’s operation, these loans offer flexible financing to cover the purchase price and related costs. LoanBox simplifies the acquisition loan process, connecting you with lenders tailored to your needs. Learn how a buying a business loan works, its SBA benefits, and how LoanBox supports your acquisition journey.

Equity Injection Requirements

Standard Rule: For complete change of ownership loans (e.g., new business purchase, expansion acquisition), the SBA requires a minimum 10% equity injection of total project costs, sourced outside the business’s existing balance sheet.

Example: A $1 million project (purchase price + closing costs) requires a $100,000 injection, which cannot come from the business’s cash reserves.

Sources:

  • Cash: From personal savings, investments, or a Home Equity Line of Credit (HELOC), wired to the lender 1–2 weeks before closing, verified with recent account statements.

  • Gift Funds: Allowed with a gift letter confirming no repayment obligation.

  • Seller Note: A promissory note from the seller can cover up to 50% of the injection, subject to SBA rules (see below).

  • Assets: Non-cash assets (e.g., equipment) may count if independently appraised above net book value.

Seller Note Options

Seller notes allow the seller to finance part of the equity injection, reducing your upfront cash need.

Full Standby Note:

  • Covers up to 50% of the 10% injection (e.g., $50,000 for a $1 million project, with the remaining $50,000 from other sources like cash).

  • Terms: No principal or interest payments for the entire term of the 7(a) loan, ensuring your cash flow supports the SBA loan. The note must be subordinated to the SBA loan with no acceleration clauses.

  • Benefit: Reduces your cash contribution, ideal for buyers with strong cash flow but limited reserves.

  • Note: Partial standby notes with interest-only payments are not permitted. Seller notes exceeding 50% of the injection are ineligible.

Expansion Acquisition Equity Injections

Business Expansion Loans

Business expansion loans involve an existing business starting or acquiring another in the same 6-digit NAICS code, with identical ownership and in the same geographic area, treated as co-borrowers. These are considered expansions, not new businesses, with different rules.

Expansion Equity Injection Rules

No Equity Injection Required: If the following conditions are met:

  1. The target business is in the same industry (same 6-digit NAICS code).

  2. The target business is in the same geographic area (e.g., same metro region or county).

  3. The exact same ownership structure applies to the purchased business.

Example: Your retail business buys another retail location in the same city with identical ownership—no injection needed.

If Conditions Aren’t Met: A 10% equity injection applies, like for a service business acquiring a location in a different region or industry.apply.