I’ve seen more than one deal nearly fall apart when the buyer’s SBA lender started asking tough questions late in the process. Sellers who thought they were weeks away from closing suddenly faced landlord disputes, paperwork delays, or rigid SBA rules they’d never heard of. If you’re selling your business, understanding how SBA financing works can save you from those surprises.
Before you decide whether to accept an offer from an SBA-financed buyer, it’s important to understand both the upside and the potential pitfalls.
Advantages of Selling to an SBA-Financed Buyer
A Larger Pool of Buyers
Many individuals and first-time entrepreneurs rely on SBA loans because they don’t have the personal capital or institutional backing to pay cash. Accepting SBA-financed buyers increases the pool of potential acquirers, which can mean stronger demand for your business.
More Cash at Closing
Unlike pure seller financing arrangements, SBA loans allow you to receive most — if not all — of the purchase price in cash at closing. This reduces your exposure to collection risk and accelerates your payday.
Government-Backed Stability
Because the loan is partially guaranteed by the SBA, lenders are more comfortable extending credit. This backing gives buyers confidence and can lead to more secure closings compared to deals with weaker financing sources.
Motivated Buyers
The SBA loan process is not for the faint of heart. Buyers who commit to it are often highly motivated and willing to endure the paperwork, personal guarantees, and waiting periods. That motivation can translate into a serious, qualified buyer for your business.
Disadvantages of Selling to an SBA-Financed Buyer
Longer Timelines and Deal Risk
SBA loans involve multiple layers of approval — bank underwriting, SBA guidelines, and often third-party reviews. This can add weeks or months to the process. Deals sometimes collapse late in diligence if the loan is denied, leaving the seller with wasted time and no closing.
Heavy Documentation Burden
Lenders will scrutinize financial statements, tax returns, contracts, and other records in extreme detail. If your books are disorganized or incomplete, expect delays. For sellers, this means you must be prepared to deliver lender-ready documentation upfront.
Lease Subordination Requirement
SBA lenders often require landlords to sign a lease subordination agreement, acknowledging the lender’s lien has priority over the lease. Many landlords — especially those with their own mortgage lenders — resist this. If not addressed early, it can kill a deal.
Lease Term Modification
In addition to requiring subordination, SBA lenders often insist that the lease on your facility be extended to match the full term of the loan — sometimes 10 years or more. This can be a major stumbling block if your landlord is unwilling to commit to such a long extension, or if you as the seller know the business won’t need that location long-term. Negotiating this requirement early is critical, as it has derailed many otherwise solid deals.
Seller Note Subordination
If a portion of the deal includes seller financing, the SBA requires that note to be subordinate to the bank’s loan. Certain types of Seller notes prohibit principal or interest payments until after the loan is paid off. This limits deal flexibility and can affect the seller’s ability to negotiate favorable repayment terms.
Limits on Seller Transition
Under SBA rules, the seller cannot remain as an employee of the business for more than 12 months post-sale. This restriction makes longer transition periods — sometimes essential in owner-dependent businesses — impossible under SBA financing.
100% Sale Requirement
SBA financing generally requires a complete change of ownership. Sellers cannot retain equity in the company as part of a phased buyout or minority rollover. If your exit strategy involves retaining a stake or transitioning out gradually, SBA financing will not allow it.
How Sellers Can Improve Their Odds of a Successful SBA Deal
Prepare Clean Financials
Ensure your tax returns, P&Ls, and balance sheets are consistent and accurate. Work with your CPA or advisor to resolve discrepancies before going to market.
Address Lease Issues Early
Talk with your landlord well before a deal is underway. If they’re unwilling to sign a subordination agreement, you’ll want to know that before wasting time with an SBA buyer.
Standardize Key Contracts
SBA lenders review customer, vendor, and franchise agreements closely. If your contracts are inconsistent, expired, or informal (“handshake deals”), that can spook a lender. Before you sell, update and standardize critical contracts so they’re lender-ready.
Clean Up Compliance & Licensing
The SBA requires proof that the business is operating legally and with all required licenses. Even small gaps — an expired occupational license, outdated insurance certificate, or missing environmental permit — can delay approval. Doing a compliance checkup in advance avoids last-minute surprises. Organize
Corporate Records
Buyers and lenders both need to see clear ownership documentation, meeting minutes (if applicable), and evidence that the company is in good standing. Having your corporate books tidy helps the lender move faster and signals professionalism.
SBA financing is a double-edged sword for sellers. On the one hand, it brings more buyers to the table and increases the likelihood of receiving cash at closing. On the other, it introduces longer timelines, stricter requirements, and rigid rules that limit flexibility in how a deal is structured.
If you’re considering selling your business, don’t dismiss SBA-financed buyers — but go in with your eyes open. Preparation, clean records, and experienced guidance can turn SBA financing from a roadblock into a reliable path to closing.
For more insight into the steps you should be taking now to help ensure a successful exit down the road, feel free to schedule a brief call with me using this link: https://calendly.com/mikelevison