A buyer's guide to reading SBA acquisition loan data

What a 7(a) change-of-ownership loan is

The 7(a) program is the SBA's main loan guaranty program. Banks and other approved lenders make the loan; the SBA guarantees a portion, which lowers the lender's loss if the borrower defaults. A change-of-ownership loan is a 7(a) loan whose purpose is to buy an existing business.

• Purpose. Buying a business, including its equipment, inventory, goodwill, and sometimes real estate, plus working capital and closing costs.
• Size cap. A single 7(a) loan is capped at $5 million. The median loan on this site is $645,250.
• Guaranty share. The SBA guarantees up to 85% of smaller loans and 75% of larger ones. Weighted by dollars, the guaranteed share of these loans is 75.8%.
• Term. Ten years is typical for business acquisitions without real estate. The median term here is 10 years. Loans that include real estate can run up to 25 years.
• Equity injection. Lenders require the buyer to contribute cash toward the project, commonly at least 10% of total cost.
• Seller notes. A note from the seller commonly fills the gap between the loan, the buyer's equity, and the price. Lenders often require such notes to be on standby, meaning no payments for a period.
• Rate. The lender sets the interest rate within SBA maximums. The average initial rate in this data is 7.76%, a blend of fixed and variable loans across several rate environments.

See the glossary for each term.

SBA loan to purchase an existing business: what the data shows

Lenders recorded 48,902 SBA 7(a) loans as a change of ownership, the category for buying an existing business, with a median of $645,250. 3.5% of those approved FY2018 to FY2021 have been charged off, against 6.2% for non-acquisition 7(a) loans in the same years. Browse by industry, state, or lender.

How to read loan size figures

• Median versus mean. The median is $645,250; the mean is $1,097,216. A few multi-million dollar loans lift the mean, so use the median for a typical deal.
• The middle-half band. The 25th to 75th percentile range ($283,000 to $1,465,000 nationally) shows where half of all loans fall. A deal inside the band is ordinary for that group; one far outside it is unusual.
• A loan is not a purchase price. The loan excludes the buyer's equity and any seller note, and may include working capital. Expect the price to be higher than the loan.
• Gross approval. Dollar totals are the gross amount approved. Cancelled loans are excluded from counts and totals; cancelled and undisbursed loans are excluded from charge-off rates. See the methodology.

How to read charge-off rates

• Definition. A charge-off is the SBA's final loss recognition on a defaulted loan. The rate on this site is charged-off loans divided by disbursed loans.
• Lag. Charge-offs follow default by a year or more. Recent loans always look better than they will end up, so the site only reports rates for a seasoned cohort.
• Seasoned cohort. Loans approved FY2018 to FY2021. The SBA file tags change-of-ownership loans only from FY2018, so that is the oldest cohort available.
• Small samples. A rate is shown only for 20 or more seasoned loans, and pages warn when the sample is under 100. One extra failure in a 40-loan group moves the rate by 2.5 percentage points.
• Acquisition versus other 7(a) loans. 20,546 seasoned acquisition loans had a charge-off rate of 3.5% by count and 1.7% by dollars. Across 160,958 non-acquisition 7(a) loans (every other stated purpose) approved FY2018 to FY2021, the rate was 6.2%. Both groups cover the same approval years and states.

How to use lender pages

• Experience in your industry and state. A lender page lists the industries and states where it has lent. Experience in your business type means fewer surprises in underwriting.
• Concentration. Acquisition lending is concentrated in a few large lenders; see the lender ranking. A smaller lender with deep experience in your industry can be a better fit than a large one without it.
• Regional versus national. A lender with loans in many states is likely national; one with loans in few states is regional and may prefer local deals.
• Performance. Lender charge-off rates reflect which borrowers a lender chose as well as how it underwrote them. Do not read them as a quality score.
• More tables. Annual totals for all 7(a) loans are on the loan statistics page; charge-off rates by cohort year, industry, and state are on the default rate page.

How to use franchise pages

• Resale versus new unit. This site counts only loans recorded as a change of ownership, so franchise pages describe resales of existing units, not new openings.
• Transfer terms. The SBA file does not record franchisor transfer terms or fees.
• Brand names. Lenders enter brand names inconsistently. Brands are grouped by SBA franchise code and the display name is cleaned; the original name is shown at the foot of each page.
• Classification. Lenders assign each franchise loan an industry code, so one brand can appear under several industries.

What the data cannot tell you

• Borrower credit and experience. The public file has no borrower credit score or background.
• Purchase price. There is no price field, only the loan amount.
• Seller financing terms. Seller notes are not recorded.
• Current delinquency. The file shows loan status, not whether a loan is behind on payments.
• Whether a lender will approve you. Past approvals show where a lender is active, not what it will do next.

Questions to bring to a lender

• How many acquisitions in my industry have you financed in the past two years?
• Are you a Preferred Lender, and how long does an approval take?
• What equity injection do you require, and will you accept a seller note on standby toward it?
• What rate and term would you quote for a deal this size, and is the rate fixed or variable?
• Does the loan include working capital or real estate, and how does that change the term?
• What do you need from the seller and from the business, and in what order?
• What collateral do you expect beyond the business assets?