SBA Loan to Buy a Business: Requirements Under SOP 50 10 8.1
For an SBA 7(a) loan to buy a business, applications received by SBA on or after 1 October 2026 are governed by Appendix 15 of SOP 50 10 8.1, and two price thresholds and one time limit decide how the deal is underwritten: $350,000, $3 million and 24 months. At a Business Purchase Price (price less owner-occupied real estate at appraised value) of $350,000 or less, Appendix 15 lets the lender value the business unless buyer and seller have a close relationship. At $3 million or more, an Initial Acquisition or Business Expansion also needs a Quality of Earnings report, a new requirement. The seller may consult for up to 24 months, double the old 12. Initial Acquisition equity is 10 percent of total project cost and cannot be reduced or eliminated. Many guides still quote the old $250,000 valuation test or an August version that never took effect.
This is general information, not legal or lending advice, and we are not a lender or attorneys. It covers 7(a) loans, not 504, and not ESOP or cooperative purchases. Appendix 15 sets minimums; your lender's credit policy sits on top and the lender decides the category. Take the purchase agreement and seller note to your attorney.
What are the SBA requirements to buy an existing business in 2026?
In outline, five things for an Initial Acquisition under Appendix 15 of SOP 50 10 8.1: 10 percent equity, a business valuation, 1.25:1 coverage on the last one or two fiscal years, a Quality of Earnings report from a $3 million price, and a seller who leaves, consulting for at most 24 months.
An 8.1 file posted in August 2026 never took effect: Information Notice 5000-882227 of 25 September 2026 says the updated text "supersedes the version previously published but not yet effective".
Appendix 15 has four categories; the table shows three, leaving out ESOP and Cooperative. "Initial Acquisition is the default category for 7(a) changes of ownership": a new majority or largest owner who was not an owner before, or who "has been employed for fewer than 24 months by the business being acquired". A Business Expansion is a business "operating for at least two full fiscal years with the current ownership purchasing 100% of the ownership interest in another business" in the same four-digit NAICS Industry Group.
| Category | Minimum equity | Coverage | Quality of Earnings |
|---|---|---|---|
| Initial Acquisition | 10 percent of total project cost, not waivable | 1.25:1 | At $3 million or more |
| Business Expansion | 10 percent of total project cost, waivable | 1.15:1 | At $3 million or more |
| Owner Buyout | 10 percent of the purchase price, waivable | 1.25:1 | Not required if the 24 month tests are met |
How much do you have to put down on an SBA acquisition loan?
10 percent of total project cost for an Initial Acquisition, with no waiver: "For Initial Acquisitions, the required equity injection cannot be reduced or eliminated". Total project cost is "all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans"; an Owner Buyout is measured on the purchase price. For Business Expansions and Owner Buyouts the lender may reduce or eliminate the injection given sufficient liquidity and working capital and no negative net worth at the last fiscal year-end.
A seller note on full standby, other standby debt and a non-controlling minority investor, "whether individually or in the aggregate, may provide no more than half of the required Equity Injection". Full standby means "no payments of principal or interest for the term of the 7(a) loan". Worked example, figures assumed, Initial Acquisition, no real estate:
| Line | Amount | Rule |
|---|---|---|
| Price, also the Business Purchase Price | $1,500,000 | No real estate |
| Working capital and closing costs | $150,000 | In the base |
| Total project cost | $1,650,000 | 1,500,000 + 150,000 |
| Minimum equity, 10 percent | $165,000 | Not waivable |
| Limited sources, at most | $82,500 | Half of $165,000 |
| Unlimited sources, such as cash that is not borrowed, at least | $82,500 | 165,000 less 82,500 |
| 7(a) loan | $1,485,000 | 1,650,000 less 165,000 |
Eligible sources, SBA Form 155 and closing checks are on our SBA equity injection requirements page.
When does the SBA require a business valuation, and who can perform it?
On a 7(a) change of ownership, Appendix 15 says "An accurate business valuation is required". Who may perform it turns on the Business Purchase Price, not the amount borrowed:
If the Business Purchase Price is $350,000 or less, the Lender may perform its own valuation of the business being sold, unless there is a close relationship between the buyer and seller
The sources differ on its reach: Appendix 15 states this with no delivery method limit, while the 7(a) Small chapter and Notice 5000-882227 describe it as specific to 7(a) Small and SBA Express loans. On a Standard 7(a) loan, confirm it with your lender.
Above $350,000, the 7(a) Small chapter refers to "the general Appendix 15 valuation requirements that require an independent valuation based on the transaction size and structure"; Appendix 15 itself no longer has the SOP 50 10 8 sentence requiring one. Appendix 15's valuer is a Qualified Source, an individual "independent of the loan production function" with an ASA, CBA, ABV, CVA or BCA credential; for a Special Purpose Property it names a Certified General Real Property Appraiser. Outside ESOP loans, the lender "may not use a business valuation prepared for the Applicant or the seller".
"If the amount paid for the business exceeds the business valuation, the difference must be made up by equity", and total debt, including a seller note not on full standby, is "limited to the business valuation amount". Value the example business at $1,400,000 and the $100,000 difference must be equity, and the $1,485,000 loan is over the $1,400,000 debt cap. Additional limited sources may cover the gap, but "any additional funds provided must be on full standby".
Why the old test misleads. SOP 50 10 8 let the lender value the business when "the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment being financed is $250,000 or less". SOP 50 10 8.1 measures price, independent of "the application of Borrower equity, structuring of seller debt". A $340,000 deal with $306,000 financed (no real estate or equipment) needed an independent valuation before and may be lender-valued now; a $600,000 deal with $200,000 financed could be lender-valued before and is over the line now.
When is a Quality of Earnings report required?
From a $3 million Business Purchase Price, in an Initial Acquisition or Business Expansion: there "the Lender must also obtain a Quality of Earnings (QoE) in addition to the required Business Valuation". SOP 50 10 8 never used the term.
"The $3 million threshold is determined before the application of buyer equity, seller debt, or other financing sources". A $4,000,000 contract price including owner-occupied real estate appraised at $1,300,000 has a Business Purchase Price of $4,000,000 less $1,300,000 = $2,700,000, so no QoE. Owner Buyouts that meet the 24 month tests and owner-occupied Special Purpose Property purchases are outside the requirement.
"The QoE must include a Cash Proof" and "must not be prepared by or for the seller". If you commissioned your own, which the August file barred, "Lenders may elect to have that report reviewed by one of their approved vendors" and, under Appendix 15, may not rely on it without that review. Notice 5000-882227 names a reliance letter as an alternative, which Appendix 15 does not mention; ask your lender. The cost "may be passed on to the borrower" and "can count toward the equity injection".
Can the seller stay on after an SBA-financed sale?
Not in an Initial Acquisition or Business Expansion: the seller "may not remain as an officer, director, stockholder, or employee of the business". The business may contract with the seller as a consultant "for a period not to exceed 24 months (in aggregate, including any extensions)"; SOP 50 10 8 allowed "a period not to exceed 12 months including any extensions". And "Seller earnouts are prohibited".
One exception is an Owner Buyout partial change: "The seller may stay on as an owner, officer, director, stockholder, Key Employee, or employee of the business."
Can an employee or a partner buy in with an SBA loan?
Yes, as an Owner Buyout, and a 24 month test on the buyer decides which credit standards apply.
In any Owner Buyout, individuals "not currently employed by the business for a minimum of 24 months may only acquire less than 50% of the total equity and may not become the largest direct or indirect shareholder". A deal that goes over is processed under the Initial Acquisition credit standards, "specifically the minimum DSC, minimum equity injection and Quality of Earnings requirements", though the seller may still stay.
Existing Owner Buyout. One of three listed routes: "A single owner is selling their 100% ownership interest to an individual who has been employed for at least 24 months preceding the application". Qualify and equity is 10 percent of the purchase price, waivable, with no QoE; fall short and the Initial Acquisition credit standards apply. Owners or employees buying out another owner need 24 consecutive months of active participation in the business.
Partial change of ownership. One "where at least one of the original owners remains as an owner after the sale and personally guarantees the loan". A selling owner who keeps less than 20 percent "must provide a full guaranty for the full loan amount" for at least two years after final disbursement.
What does your business plan have to show the lender?
Coverage first: 1.25:1 for an Initial Acquisition or Owner Buyout and 1.15:1 for a Business Expansion, on the last fiscal year-end or the average of the last two, "on either a historical or adjusted basis". If combined annual debt service after closing is $200,000, the business needs EBITDA, after any adjustment the lender can justify, of at least 1.25 x $200,000 = $250,000, or 1.15 x $200,000 = $230,000 for a Business Expansion. Projections no longer carry the test: the lender "may not rely on them to meet the DSC requirement", except in buying an owner-occupied Special Purpose Property whose appraised value fully collateralizes the loan, where the ratio must be met within two years of funding. See our SBA debt service coverage requirements page for add-backs and global cash flow.
Appendix 15 never uses the words business plan (see does the SBA require a business plan?); it lists what the credit memorandum must contain, so build the plan to that:
- Three years of the seller's historicals, on the "highest level of financial reporting available" and tied to IRS transcripts.
- A coverage schedule with every add-back justified; unsupported adjustments "will be ineligible for purposes of determining this core underwriting requirement".
- Sources and uses reconciled to total project cost, with the 10 percent split between unlimited and limited sources.
- A management narrative on the "principal’s involvement in the daily onsite management of the business", the seller's consulting contract, a 12 month working capital analysis and the post-closing projections.
Our SBA loan business plans are $1,000 Essential, $1,800 Standard and $2,500 Premium, and the financial model $750, $1,250 and $1,950, fixed. We never charge a percentage of anything you borrow, invest or raise. The other 7(a) rules start at our SBA loan requirements hub.
Business Plan Firm is the US practice of Avvale, a London consultancy. We have written 1,000+ plans for 500+ founders across 30+ countries, and our clients have raised $500M+.
How we verified this
Every quotation was checked against raw source text, and every source was retrieved again on 10 October 2026.
- SBA SOP 50 10 8.1, effective 1 October 2026, for every current rule: the Word file on SBA's SOP 50 10 page, last updated 7 October 2026. Appendix 15 is unchanged from the file it replaced. The August 2026 file, never effective, was read for comparison.
- SBA Information Notice 5000-882227, 25 September 2026, for the supersession, the application date, the 7(a) Small and SBA Express list and the reliance letter.
- SOP 50 10 8, effective 1 June 2025, for the superseded $250,000 test and the 12 month limit.
Not verified, so not on this page: valuation or Quality of Earnings fees, which we have not surveyed; approval rates, default rates or closing times; what counts as a close relationship, which Appendix 15 does not define.
Frequently asked questions
How much do you have to put down to buy a business with an SBA loan?
Under Appendix 15 of SOP 50 10 8.1, buying a business with an SBA 7(a) loan as an Initial Acquisition takes equity of at least 10 percent of total project cost, which cannot be reduced or eliminated. A full-standby seller note, other standby debt and a minority investor may together supply no more than half.
Does the SBA require a business valuation to buy a business?
Yes. Appendix 15 of SOP 50 10 8.1 requires a business valuation on an SBA 7(a) change of ownership. At a Business Purchase Price of $350,000 or less it lets the lender perform its own, unless there is a close relationship between buyer and seller. Above that the SOP's general requirement is an independent valuation.
Can the seller stay on after an SBA 7(a) business acquisition?
Under Appendix 15 of SOP 50 10 8.1, the seller in an SBA 7(a) Initial Acquisition or Business Expansion may not remain as an officer, director, stockholder or employee, but may consult for up to 24 months, double the 12 in SOP 50 10 8. In an Owner Buyout partial change the seller may stay.
When does the SBA require a Quality of Earnings report?
Under Appendix 15 of SOP 50 10 8.1, the lender must obtain a Quality of Earnings report on an SBA 7(a) Initial Acquisition or Business Expansion with a Business Purchase Price of $3 million or more, before buyer equity or seller debt. It must include a Cash Proof and must not be prepared by or for the seller.
Can an employee buy the business from the owner with an SBA loan?
Yes. Under Appendix 15 of SOP 50 10 8.1, an employee of at least 24 months buying a sole owner's 100 percent interest with an SBA 7(a) loan is an Existing Owner Buyout: equity is 10 percent of the purchase price, waivable, with no Quality of Earnings report. Under 24 months the Initial Acquisition credit standards apply.
This page summarizes Appendix 15 of SBA SOP 50 10 8.1 and SBA Information Notice 5000-882227 as retrieved on 10 October 2026. It is general information, not legal, lending or tax advice. Confirm your transaction's requirements with your lender and attorney before you sign.