Updated November 05, 2026
Quick answer
It can be done on an SBA 7(a) loan, but 5% is half of a rule. A first-time buyer needs 10% equity of total project cost, and a seller note on full standby can supply up to half, leaving about 5% in cash. The seller gets no payments for the loan's term. Axiant Partners, a business-loan broker in Boca Raton, can find lenders who allow it. Lender requirements commonly go beyond these minimums.
How the 5% Down Structure Works
SBA SOP 50 10 8.1, effective October 1, 2026, sets the rules in its Appendix 15. A buyer who doesn't already own the business usually falls under an Initial Acquisition, the default category, with a 10% minimum equity injection that can't be reduced or eliminated.
| Part of the 10% | Source | SBA rule |
|---|---|---|
| At least half | Cash not borrowed, including a gift; certain verified prepaid expenses and grants | Unlimited sources, no cap |
| No more than half | Seller note on full standby | No principal or interest payments for the term of the 7(a) loan |
| No more than half, combined | Other standby debt; non-controlling minority investors with under 20% | Counted together with the seller note |
So on a $1,000,000 project, the minimum is $100,000, and at most $50,000 of that can come from limited sources. The base is total project cost, not just the price, so closing costs and any working capital raise it. The standby debt may accrue interest and may start being paid only after the 7(a) loan is paid off.
The Catch: The Seller Has to Agree
Full standby asks a lot. On a 10-year loan, the seller could wait a decade to see a dollar of that note, behind the lender. Many won't accept it, and you'll need a price or other terms that make it worthwhile. Seller debt that does have payments can still be part of a deal, but it doesn't count as equity, and the payments have to fit inside your cash flow test.
- Interest-only seller debt. When it isn't on standby, the lender must underwrite it on an amortization of no more than 10 years.
- Refinancing later. Seller debt from a change of ownership becomes eligible for refinancing after 36 months in place and current.
- Seller transition. In this kind of deal the seller can't stay on as an officer, director, owner or employee. A consulting contract is allowed, up to 24 months in total.
Who Can Get This, and What Lenders Add
SBA rules are a floor. Lenders add their own, and that is why one says no where another says yes. These are common practices, not promises:
- Relevant experience. Time in the industry, or as a manager at a similar company, carries the most weight. The lender has to document it.
- Credit. Many SBA lenders look for roughly 650-680 or higher.
- Reserves. 5% down doesn't mean 5% is all you need. Expect to show cash left over after closing.
- Bigger deals. On roughly $1M-$5M purchases, lenders often want more collateral or a larger seller note. The SOP requires a Quality of Earnings report at a $3 million purchase price.
- Citizenship. All direct and indirect owners and required guarantors must be U.S. citizens or nationals living in the U.S. or its territories.
Many SBA lenders also decline certain businesses, such as gas stations and anything with underground tanks, restaurants and bars, vape shops, delivery routes such as FedEx, and fleet-heavy companies. If yours is on that list, a different lender or a conventional term loan may fit.
The Cash Flow Test and the Valuation
The business has to carry the deal. Appendix 15 requires debt service coverage of at least 1.25 to 1 for an Initial Acquisition, based on the last fiscal year-end or a two-year average. Total eligible debt supporting the purchase, including seller debt that isn't on full standby, is limited to the business valuation. If the price is higher than the valuation supports, the difference has to come from extra equity or full-standby funds.
A business valuation is required, though the lender may do its own at $350,000 or less unless buyer and seller have a close relationship. Term is also tighter than people assume: acquisition loans amortize over 10 years at most. Real estate bought in the deal can run up to 25 years, either as a separate loan or blended, and the same equity rules apply to it.
Worked Example: A $1,000,000 Purchase
Illustrative numbers, not a quote. A manager in the industry buys a service company for $1,000,000, with no real estate, plus about $15,000 in closing costs. The estimated guaranty fee, at 3.5% of the 75% guaranteed share under the FY2027 fee notice, adds about $24,560.
| Item | Amount |
|---|---|
| Total project cost | About $1,039,560 |
| Buyer's cash (5%) | About $51,980 |
| Seller note on full standby (5%) | About $51,980 |
| SBA 7(a) loan (90%) | About $935,600 |
| Assumed rate and term | 10.5%, 10 years |
| Monthly payment | About $12,625 ($151,500 a year) |
| Cash flow needed at 1.25 to 1 | About $189,400 a year |
If the company produces less than about $189,400 a year after any adjustments, the lender will likely ask for a lower price or more equity. You also still need to pay yourself.
Already Own a Business? You May Need Less
A different category applies if you already own a company in the same four-digit NAICS industry group. A Business Expansion needs two full fiscal years of operation under current ownership and the purchase of 100% of the target. The minimum is still 10%, but the lender may reduce or eliminate it if you have enough liquidity and working capital and your balance sheet doesn't show negative net worth. The coverage test is 1.15 to 1. If the lender waives equity, it can't add dedicated permanent working capital to this or another 7(a) term loan within 90 days.
Next steps: review the broader business acquisition financing guide, read about where an SBA down payment can come from, and get matched, or talk to an SBA specialist at (561) 268-0465. Buying your building too? See 100% SBA financing, though in a change of ownership the real estate is subject to the same equity rules.
Frequently Asked Questions
Can you really buy a business with 5% down?
Yes, in some SBA 7(a) deals. The rule is 10% equity, and a seller note on full standby can cover up to half of that, leaving about 5% in cash. The seller must agree and the lender must allow it.
What does full standby mean for a seller note?
No payments of principal or interest for the term of the 7(a) loan. Interest may accrue and be paid after the SBA loan is repaid. The seller also subordinates to the lender.
Can I borrow my 5% down payment?
Cash for the unlimited portion must not be borrowed, with a narrow exception for a personal loan to a guarantor if repayment can be shown to come from outside the business's cash flow. A gift can count if it's documented.
Does the 10% apply to the price or to total costs?
It applies to total project cost, meaning all costs required to become operational, except lines of credit and 504 loans. That's usually more than the purchase price.
Can the SBA equity requirement be waived?
Not on an Initial Acquisition. A lender may reduce or eliminate it on a Business Expansion or Owner Buyout, if the borrower has enough liquidity and working capital and no negative net worth at the last fiscal year-end.
What credit score do I need?
SBA sets no single public score for this. Many lenders look for roughly 650-680 or higher, and strong experience and cash flow can matter as much. Treat that as a typical range, not a rule.
Sources & Further Reading
- SBA SOP 50 10 8.1 (effective October 1, 2026) — The SBA's rules for 7(a) and 504 loans, including equity injection, Appendix 15 on changes of ownership, and eligibility.
- NAGGL: FY 2027 7(a) and 504 fee notices — Summary of SBA Information Notice 5000-881797, the 7(a) upfront guaranty fees effective October 1, 2026.
- SBA 7(a) Loans — Program overview and the $5 million maximum loan amount.
- 13 CFR 120.150: What are SBA's lending criteria? — SBA's criteria for 7(a) lending, including management ability, equity and repayment.
Figures above describe ranges commonly seen across lenders and reflect published guidance as of the date on this page. Confirm current terms with the cited source or your lender before acting.