When you decide to buy a business, one of the first questions is how to pay for it. Two of the most common routes are an SBA loan and seller financing. They work very differently, and the right choice depends on your situation, your timeline and the seller. This guide compares them honestly so you can decide.
How an SBA loan works
An SBA-backed loan is made by a bank or lender, with a government guarantee behind part of it. For a buyer, that usually means:
- A down payment. Lenders commonly expect the buyer to put in cash, often a meaningful percentage of the price.
- Personal guarantees. Owners of the acquiring business are typically asked to guarantee the loan personally.
- Underwriting and paperwork. Expect detailed financials, tax returns, a business plan and third-party reports.
- Time. From application to closing often takes weeks, sometimes longer.
How seller financing works
In seller financing, the owner agrees to be paid part of the price over time. You sign a promissory note, and the payments come from the business’s own earnings. See our full explainer on buying a business with seller financing. Typically:
- Terms are negotiated directly. Price, interest, schedule and security are agreed between you and the seller.
- It can need little or no cash up front. That depends on the deal and the seller’s goals.
- It moves faster. There is no lender underwriting the deal, though an attorney should still draft the documents.
- The seller stays invested. A seller who is paid over time cares about a smooth handover.
Side by side
| SBA loan | Seller financing | |
|---|---|---|
| Who funds it | A bank or lender | The seller |
| Cash needed up front | Usually a down payment | Negotiable, sometimes very little |
| Personal guarantee | Commonly required | Negotiated |
| Speed | Slower, with underwriting | Often faster |
| Flexibility | Set by lender rules | Set by you and the seller |
Can you combine them?
Yes. Many deals use both: a lender funds part of the price, and a seller note covers a portion more. Some lenders even look favorably on a seller who stays invested. What matters is that every party understands the structure before signing.
When seller financing makes sense
- The owner is retiring and cares about who takes over the business.
- You want to preserve your cash for running and improving the company.
- The business generates steady cash flow that can comfortably cover the payments.
- You can find the owner before the business is listed, which gives you room to negotiate. Read our guide to finding off-market businesses.
Protect yourself either way
- Model a downside case, so you know the payments are safe if earnings dip.
- Verify the numbers with our due diligence checklist.
- Have an attorney licensed in your state draft or review the agreements.
Learn the structures in person
At The Great Wealth Transfer, our live 2-day event in Dallas, Miami and New York in February 2027, Day 2 covers no-money-down structures and when to use each one. Early bird tickets are $99, and you can book a free planning call to get the most from it.
This article is for educational purposes only and is not legal, tax or financial advice. Results are not typical. Consult qualified professionals in your state before entering any transaction.
