Updated November 13, 2026
Quick answer
On a $1 million to $5 million purchase, SBA 7(a) rules add weight. A Quality of Earnings report is required at a $3 million purchase price, goodwill counts for nothing as collateral, so lenders must take equity in owners' personal real estate, and life insurance can be required. 7(a) stops at $5 million. Axiant Partners, a broker in Boca Raton, can find lenders for these deals. Terms vary by lender.
What Changes as the Price Goes Up
SOP 50 10 8.1 applies the same Appendix 15 rules to a $400,000 purchase and a $4 million one, but several of them only bite at size:
| Purchase price | What the SOP adds | What lenders commonly add |
|---|---|---|
| Over $350,000 | Business valuation from an accredited appraiser, ordered by the lender | Three years of financials, ideally CPA-reviewed |
| $1M-$3M | Collateral shortfall rules start to reach personal real estate | More cash or seller debt, a key-person plan |
| $3M and up | Quality of Earnings report with a cash proof (Initial Acquisition and Business Expansion) | Covenants, larger seller notes, a line for working capital |
| Over $5M | 7(a) maximum is $5 million | A pari passu bank loan, conventional debt or other structures |
The $3 million QoE threshold is measured on the Business Purchase Price, excluding owner-occupied real estate, before any equity or seller debt. It's commissioned for the lender, reconciles the statements, tax returns and IRS transcripts, and its earnings figure is the one used for coverage.
Why the Collateral Shortfall Lands on the Owners
Most of a service company's price is goodwill, which isn't a fixed asset. The SOP defines "fully secured" using discounted values:
| Asset | Value counted toward fully secured |
|---|---|
| Used equipment | Machinery and equipment: 50% of net book value, or 80% of an orderly liquidation appraisal |
| Improved real estate | 85% of market value |
| Unimproved real estate | 50% of market value |
| Furniture and fixtures | 10% of net book or appraised value |
| Receivables and inventory | 10% of current book value |
When a loan isn't fully secured, the lender must take available equity in personal real estate solely owned by co-borrowers, 20%+ owners and most guarantors, including investment property. The lien can be limited to the shortfall or to 150% of the equity, and a property with less than 25% equity doesn't have to be pledged.
Worked Example: A $3,500,000 Purchase
Illustrative, not a quote. A buyer acquires a distribution company for $3,500,000 with 10% equity (fees and costs left out to keep the math clear), so the 7(a) loan is $3,150,000. The business has $600,000 of used equipment at book, $400,000 of receivables, $300,000 of inventory and $100,000 of furniture and fixtures.
| Item | Amount |
|---|---|
| Equipment at 50% of book | $300,000 |
| A/R and inventory at 10% | $70,000 |
| Fixtures at 10% | $10,000 |
| Business collateral value | $380,000 |
| Shortfall against the loan | $2,770,000 |
| Buyer's home equity | $900,000 value less a $400,000 mortgage: $500,000 (56%), so it must be pledged |
| Shortfall after the home | $2,270,000 |
| Monthly payment | About $42,505 (10.5%, 10 years) |
| Cash flow needed at 1.25 | About $637,568 a year |
The price is above $3 million, so a QoE is also required. If the business depends on this one owner, life insurance is required for the shortfall amount, as the next section explains.
Life Insurance, Seller Notes and Reserves
- Life insurance. On a standard 7(a) loan that isn't fully secured, the SOP requires life insurance in the amount of the collateral shortfall for a sole proprietor, a single-member LLC or any business dependent on one owner. The policy is collaterally assigned to the lender, an existing policy can be pledged, and credit life or whole life shouldn't be required. The lender's memo must say who is insured and for how much, or why none.
- Bigger seller notes. Lenders often ask sellers of larger companies to carry more, both to cut the loan and to keep the seller invested. Only a note on full standby counts as equity; see the seller note rules.
- Working capital lines. The SOP lets a line of credit hold a first lien on the acquired receivables and inventory if 20% to 50% of its day-one availability is used to fund part of the price.
- Reserves. Lenders commonly want post-closing liquidity on top of the equity, and the cash flow test is run on the lower QoE earnings.
Deals Over $5 Million
A single 7(a) loan tops out at $5 million. Larger purchases usually pair it with another lender. The SOP bans piggyback structures, where another loan made within 90 days takes a senior lien over the SBA loan. A shared lien with the bank (pari passu) is allowed if the other loan's maturity isn't shorter than the SBA loan's. Banks also face lending limits: under 12 CFR 32.3 a national bank can generally lend one borrower 15% of its capital and surplus, so big deals often need a participation. Our $10 million business loan guide covers the structures above the 7(a) limit.
Related: buying a competitor uses a lighter 1.15 coverage test, and the business acquisition financing guide compares SBA with conventional and seller financing.
Talk to an SBA specialist: (561) 268-0465, or get matched with acquisition lenders.
Frequently Asked Questions
Can you get a $5 million SBA loan to buy a business?
Yes, $5 million is the 7(a) maximum, and acquisitions can use it. At that size expect a Quality of Earnings report, an accredited valuation and a close look at collateral and coverage.
When does the SBA require a Quality of Earnings report?
For Initial Acquisitions and Business Expansions with a Business Purchase Price of $3 million or more, excluding owner-occupied real estate, under SOP 50 10 8.1.
Will the lender take a lien on my house to buy a business?
Often, on larger deals. If the loan isn't fully secured, the SOP requires the lender to take available equity in personal real estate of 20%+ owners, unless the equity is under 25% of its value.
Is life insurance required on an SBA acquisition loan?
On a standard 7(a) loan that isn't fully secured, yes for a sole proprietor, single-member LLC or business dependent on one owner, in the amount of the collateral shortfall. Otherwise lender policy applies.
How do you finance an acquisition over $5 million?
Usually by pairing a 7(a) loan with a bank loan that shares the lien and has at least as long a maturity, or with conventional, seller or equity financing.
Why do lenders want a bigger seller note on larger deals?
It lowers the loan, keeps the seller invested in the transition and covers part of the collateral gap. To count as equity it must be on full standby.
Sources & Further Reading
- SBA SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership (effective October 1, 2026) — Transaction types, equity injection by type, seller debt and standby rules, valuation, Quality of Earnings, debt service coverage and collateral for acquisitions.
- SBA 7(a) Loans — Program overview and the $5 million maximum loan amount.
- 12 CFR 32.3: Lending limits — A national bank's limit on loans to one borrower: 15% of capital and surplus, plus 10% more if fully secured by readily marketable collateral.
- 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.