By Hari Nathan Kalyan, Managing Attorney, Warren Kalyan.
Five Key Takeaways
- Start with the buyer structure. Who owns the business at closing, and whether the buyer takes assets or equity, drives the documents and the lender's approvals.
- A seller note is not automatic equity. Repayment terms, standby language, and lien position need to be settled early.
- Match the contract to the loan. Build in financing contingencies, realistic deadlines, and a plan for a lender required change in structure.
- Budget beyond the price. Inventory, payroll, deposits, repairs, and fees can create a cash squeeze right after closing.
- Plan the handoff now. Confirm who controls customers, vendors, software, licenses, leases, and key employees after closing.
Buying an existing business can be faster than building one from scratch. But when the acquisition depends on SBA financing, the purchase agreement and the loan process need to work together. Otherwise, a deal that looks good on paper can stall just before closing.
Start With the Actual Buyer Structure
Who will own the business at closing? Will the buyer acquire assets or equity? Will the seller keep any ownership or management role? These questions affect the purchase documents, lender underwriting, and the approvals that may be needed.
Do not assume a structure is acceptable simply because it worked in another transaction. SBA program rules and lender requirements change, and each deal has its own facts.
Get the Seller Note Right
A seller financed portion of the purchase price can help bridge a valuation or funding gap. But a seller note is not automatically treated as an equity injection. Its repayment terms, standby requirements, lien position, and treatment by the lender must be addressed early. A loosely drafted note can create a financing problem after the parties have already negotiated the economics.
Here is the current baseline. Under SBA's SOP 50 10 8, effective June 1, 2025, law firm summaries report that a seller note counts toward the required equity injection only if it is on full standby for the life of the SBA loan, and it cannot be more than half of the required injection. Later SBA updates and individual lender policies can change how this works in practice, so confirm the current SOP and your lender's requirements before you sign a term sheet.
Match the Purchase Agreement to the Financing
The agreement should account for financing contingencies, lender diligence, third party consents, the timing of landlord approvals, and what happens if the lender requires a change in structure. Consider whether the parties have realistic deadlines for obtaining financial statements, tax returns, licenses, franchise approvals, and other records. A short closing deadline does not make the lender's process shorter.
Pay Attention to Working Capital
The price is only part of the cash requirement. Buyers may also need money for inventory, payroll, deposits, repairs, professional fees, and the transition period. Identify which items are included in the acquisition and which must be funded separately. A business that is profitable on paper can still experience a cash squeeze immediately after closing.
Do Not Leave the Operating Handoff Until the End
A successful acquisition requires more than signed documents. Confirm who controls customer accounts, vendor relationships, software, intellectual property, licenses, leases, and key employee relationships after closing. Build the transition plan into the deal instead of relying on informal promises.
The Takeaway
An SBA financed acquisition works best when the legal structure, purchase agreement, lender requirements, and transition plan are developed together. Resolve the hard questions before the parties become locked into a closing date.
At Warren Kalyan, we help buyers and sellers line up the deal documents with the loan process from the start. Early advice usually costs far less than late advice.
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General information only, not legal advice for your specific situation.