Under SBA rules, a buyer usually has to put in at least 10% of the total project cost, not 10% of the purchase price. On an $800,000 business with $50,000 of closing costs and $100,000 of working capital, that comes to about $95,000, before the personal cushion you should keep outside the deal.
The 10% down you've heard about isn't the whole story. The difference between 10% of the price and 10% of the project is real money, and buyers who plan on the smaller number can find themselves short at exactly the wrong moment.
10% of what, exactly?
The total project is everything the deal needs to be funded, not just the check to the seller. In the example from the video:
- Purchase price: $800,000
- Closing costs: $50,000
- Working capital to run the business: $100,000
- Total project: $950,000
Ten percent of $950,000 is $95,000. If you had planned on 10% of the price, you would have budgeted $80,000 and come up $15,000 short. For an initial acquisition under the SBA's current rules, that minimum can't be waived.
If the loan funds anything beyond the purchase, the closing costs and the working capital, those additional uses are added to the project too, and the 10% grows with them. That is one more reason to get the full picture from your lender before you make an offer.
Can the seller carry part of it?
Sometimes. A seller note can count toward your injection, but only up to half of the required amount, and only if the seller agrees to take no payments for the life of the loan. In this example, that means a seller note could cover up to $47,500, and at least $47,500 would still need to come from you.
That standby condition is a hard ask. On a typical acquisition loan, it means the seller waits years before collecting a dollar of that note. Some sellers will agree, especially when it helps them get their price, but don't build your plan around it until the seller has said yes in writing.
Keep a cushion outside the deal
The injection gets you to the closing table. It doesn't carry you through the first few months of ownership. The working capital in the deal belongs to the business; your own household still has bills while you learn the operation and ramp up.
So on top of the injection, keep a cushion of your own, outside the deal. How much depends on your situation and the business, which is a good conversation to have with your lender and your own financial advisor before you make an offer.
What to do next
Talk to an SBA lender early, before you fall in love with a listing. Ask them to model the total project cost for the size of business you're targeting, confirm what applies to you, and tell you exactly how much cash you'll need to show. Once you know that number, you can shop with confidence. It also helps with sellers: a buyer who knows their real cash requirement, and can show they have it, comes across as serious when more than one buyer wants the same business. My guide to buying a business covers the rest of the financing basics.
Ready to talk it through? Talk with me about selling. No cost, no obligation.
Read the transcript
Buyers ask me how much cash they really need to buy a business with an SBA loan. The 10% down you've heard isn't the entire story.
Under SBA rules, a buyer usually has to put in at least 10% of the total project cost. That's more than just the price of the business.
Let's say the price is $800,000. You add $50,000 in closing costs and $100,000 in working capital to run the business. Now the project is $950,000. So your minimum is about $95,000, not the $80,000 that you planned.
Now, can a seller carry part of that? Sometimes. A seller note can cover up to half of that 10%. But it only counts if the seller agrees to take no payments for the life of the loan. And that's a hard ask.
On top of that, you want a cushion of your own outside of the deal for those first few months as you ramp up.
Your lender will confirm what really applies to you as a buyer. And if you know someone who's looking to buy a business, send them this so they know how to use the SBA.
