Few buyers pay for a practice entirely in cash. The most common way to finance an acquisition is an SBA 7(a) loan: a bank loan partly guaranteed by the U.S. Small Business Administration. This guide explains how these loans work for a tax or accounting practice purchase, what lenders look for, and how SBA rules shape the deal you can offer.
The quick answer
How an SBA 7(a) acquisition loan works
The SBA doesn't lend you the money. A bank or other approved lender does, and the SBA guarantees a large part of the loan. That guarantee lets lenders finance deals they otherwise wouldn't, such as the purchase of a practice whose main asset is its client relationships rather than buildings or equipment.
For a practice purchase, the loan typically covers most of the price, plus closing costs and sometimes some working capital. You personally guarantee the loan, along with anyone else who will own 20% or more of the business. Lenders that make these loans often, especially those approved as SBA Preferred Lenders, can usually decide faster.
What lenders look for
- Cash flow that covers the payments. Lenders compare the practice's cash flow, after a market-rate salary for whoever does the work, with the new loan payments. Many look for coverage of about 1.25× or better.
- Your experience. A CPA, an EA or an experienced preparer buying a practice in their own field is a much easier approval than an outside investor.
- The practice's records. Expect to provide the practice's tax returns and financial statements, usually for three years, plus revenue by client and by service.
- Your personal finances. Credit history, personal tax returns, and enough liquidity for the down payment and a cushion.
- A credible transition. Lenders know client retention is the main risk, so a seller who will introduce you to clients makes the loan stronger.
Your down payment (equity injection)
For a full change of ownership, current SBA rules generally require the buyer to put in at least 10% of the total project cost. That usually comes from your own cash. In some cases, a note from the seller can count toward part of the requirement, but only if the seller agrees not to receive payments on it for a long period, known as being on full standby. Lenders can require more than the SBA minimum, particularly for first-time owners.
Example: financing a $500,000 practice
The numbers below are illustrative. Your rate and terms will depend on the lender and the market at the time.
| Amount | |
|---|---|
| Purchase price | $500,000 |
| Your equity injection (10%) | $50,000 |
| SBA loan | $450,000 |
| Illustrative rate and term | 10.5%, 10 years |
| Monthly payment | About $6,070 |
| Annual loan payments | About $72,900 |
| Cash flow needed at 1.25× coverage | About $91,100 a year |
Suppose the practice brings in $200,000 a year before paying the owner, and a fair salary for the work you'll do is $100,000. That leaves about $100,000 to cover $72,900 in loan payments, a coverage ratio of roughly 1.37×, which most lenders would be comfortable with. If you already run a practice and can absorb the clients with your existing staff, the combined cash flow is often stronger still.
Closing costs and the SBA guarantee fee are usually added to the loan, so the total borrowed is often a little higher than the purchase price minus your down payment.
How SBA rules shape the deal
SBA financing affects more than the money. A few rules change how practice deals are usually structured:
- No earn-outs. SBA rules generally don't allow a price that depends on how the business performs after closing. That means the retention-based price adjustments common in practice sales usually can't be part of an SBA-financed price. Instead, retention risk is handled through a careful valuation, the seller's transition commitment and sometimes a separate seller note.
- The seller's role is time-limited. Under current rules, a seller can stay on as an employee or consultant for up to 12 months after a full change of ownership. That fits the typical one-season transition well.
- Seller notes are restricted. A seller note alongside the SBA loan is possible, but the lender will set conditions on when it can be paid. If the note counts toward your equity injection, it must be on full standby.
- Appraisals and valuations. Depending on the loan size and how much of the price is goodwill, the lender may require an independent business valuation.
For sellers, this is why an SBA-financed offer is usually cash at closing at a fixed price. It often comes in a little below a headline offer with retention terms, but it is more certain. Our valuation guide compares the two.
Step by step, from search to closing
- Get pre-qualified. Talk to a lender that finances professional-practice acquisitions before you make offers. It tells you your budget and makes sellers take your offer seriously.
- Register your criteria. Register as a buyer with the location, size and type of practice you want. It's free.
- Review listings and sign the NDA. You'll receive the full practice profile and the financials the lender will ask for.
- Make an offer. Submit a letter of intent that says the deal depends on SBA financing.
- Lender underwriting. The lender reviews the practice, your finances and the purchase agreement, and may order a valuation.
- Close and transition. Closing commonly happens 45 to 90 days after the lender has everything it needs, followed by the seller-supported handoff.
Alternatives to an SBA loan
| Option | When it fits |
|---|---|
| Cash | Fastest and simplest. Strongest position in negotiations, especially for smaller practices. |
| Seller financing | A down payment plus payments to the seller over 2–5 years. Common for smaller deals; the seller shares the risk. |
| Retention-based price | Part of the price depends on how many clients stay. Fairly shares risk, but can't be combined with an SBA loan. |
| Conventional bank loan | Possible for buyers with strong collateral or an existing firm, often with shorter terms. |
| A combination | Cash or a conventional loan plus a seller note, for example, to balance price, risk and cash flow. |
This guide is general information, not lending, legal or tax advice. SBA requirements are set in the SBA's Standard Operating Procedures and change periodically; your lender will confirm the rules that apply to your loan.
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