What credit score do I need for an SBA loan?

There is no single number that applies everywhere. The SBA sets the rules for the program, and each lender decides its own credit standards inside those rules. As a rough guide, many lenders like to see personal scores in the mid-600s or higher, and a higher score makes the conversation easier.

What matters just as much is the story behind the score: recent late payments, collections, tax liens or a past bankruptcy. A lower score is not always a no, especially with a good explanation and strong business cash flow. If you are unsure, send me your situation and I will tell you honestly where you stand.

How much cash do I really need to buy a business?

Under the SBA rules in effect since October 1, 2026, you need to put in at least 10% of the total project cost. The total project cost is the purchase price plus costs such as closing costs and any working capital you finance. A purchase with no money down is no longer possible.

Example: on an $800,000 project, 10% is $80,000.

A standby seller note can cover part of that 10%, but no more than half of it. The rest has to be your own cash or other equity you put in. It also helps to keep some cash in reserve after closing, because lenders like to see a cushion.

What is a standby seller note?

A seller note means the seller finances part of the price, and you pay the seller over time instead of all at closing. On full standby means you make no payments on it, no principal and no interest, for the entire life of the SBA loan.

That is what lets the SBA count it toward your down payment, up to half of the required 10%. Because it makes no payments, it does not weigh on the monthly cash flow the lender measures.

Example on an $800,000 project: $40,000 (5%) as a standby seller note and $40,000 (5%) from your own cash.

A seller note that does make regular payments is a different thing. It lowers the SBA loan, but its payments count against the business cash flow, and it does not count toward the 10%.

What does 1.25x cash flow coverage mean?

Lenders check whether the business earns enough to pay the loan with room to spare. For every $1.00 of loan payments, the business should produce at least $1.25 of cash flow after you pay yourself a fair salary.

Example: a business with $250,000 of yearly cash flow, and $80,000 for your living wage, leaves $170,000. Divided by 1.25, loan payments could be up to about $136,000 a year, or about $11,300 a month.

You can test your own numbers with the free Deal Analyzer.

How do I know if the asking price is too high?

Lenders look at what the business earns, not what the seller hopes to get. Compare the price to the yearly cash flow of the business. The Deal Analyzer shows that comparison and the highest price the cash flow can support at 1.25x.

If the price is higher than the cash flow supports, you can negotiate the price, bring more cash, or ask the seller for a standby note.

Can I finance closing costs and working capital?

Usually yes. Closing costs and a reasonable amount of working capital can be part of the loan. Keep in mind they also raise the total project cost, and the 10% that goes with it.

Do I need experience in the industry?

Not always, but it helps a great deal. Lenders want to see that you can run this business. Related experience, management experience, or a plan to keep the seller on for a transition period all help. If you are new to the field, tell me early so we can plan around it.

Will I have to put up my house?

The SBA does not allow a lender to turn down an otherwise good loan only because collateral is short. Lenders do take the collateral that is available, which usually includes business assets and may include real estate where there is equity. Anyone who owns 20% or more of the business signs a personal guarantee.

Whether a lender asks for a lien on a home varies, so ask about it early.

How long does it take?

The timeline depends mostly on how quickly the paperwork comes together. A complete package moves faster. Start early with the Buyers Checklist and ask the seller to gather their documents at the same time.

What does the SBA guarantee actually do?

The SBA does not lend you the money. Your lender makes the loan, and the SBA guarantees a portion of it to the lender. That lowers the lender risk, which is why a lender can often say yes to a good business that might not fit conventional underwriting.

It does not forgive the loan. You still repay it in full, and owners of 20% or more sign a personal guarantee.

How long do I have to pay it back?

For buying a business, the loan term is typically up to 10 years. If real estate is part of the purchase, the term can be longer, up to 25 years for the real estate portion. A longer term means a lower monthly payment.

What interest rate will I pay?

SBA 7(a) rates are usually set as the prime rate plus a spread, and many are variable, so your payment can change when prime changes. Your lender sets the spread within the maximums the SBA allows. The Deal Analyzer lets you enter the current prime rate and a spread to see the payment, and what happens if the rate moves.

What fees and costs should I expect?

Expect an SBA guarantee fee that depends on the loan size and is often added to the loan, along with normal closing costs such as legal, appraisal or valuation, and title or filing fees. Ask for the exact figures in writing early so nothing surprises you at closing.

Prepayment penalties only apply to SBA loans with terms of 15 years or more, so most business purchase loans can be paid off early without one.

The seller says the business earns more than the tax returns show. Will a lender count that?

Sometimes, with proof. Lenders start with the tax returns and the financial statements. They will adjust for items such as the owner pay, one-time expenses and non-cash items like depreciation, but each adjustment needs documents behind it. Money that was never reported is hard for a lender to count.

Ask the seller early for a clear, supported breakdown of the cash flow.

What will a lender ask me for?

Expect a personal financial statement, recent personal tax returns, a resume that shows your experience, proof of your cash for the down payment, and the business documents on the seller list, including three years of business tax returns and current financial statements. Gathering these early shortens the process.

You can follow along with the Buyers Checklist.

Can I borrow or receive a gift for my down payment?

It depends on where the money comes from and how it is documented. Gifted funds can sometimes be used with a signed gift letter. Borrowed money is more complicated, and lenders look closely at how it will be repaid. Because the rules are strict, talk to your lender before you move any money, and keep records of where every dollar came from.

Can I use my retirement savings?

Some buyers use funds rolled over from a retirement account to supply their own cash. It has to be set up properly through a specialist, and there are tax and legal rules to follow, so get professional tax advice first. Tell your lender early, because it affects how the deal is structured and documented.