The short answer: For most first-time buyers, the SBA 7(a) wins, as little as 10% down, a 10-year term with no prepayment penalty under 15 years, and it finances goodwill that banks won't touch conventionally. A conventional loan can be cheaper and faster but typically wants 20%, 30% down and hard collateral. The SBA is the low-down-payment path; conventional is the collateral-and-cash path. See the full 7(a) acquisition guide.
Why the two loans exist
A conventional loan is a straight bank loan: the bank lends its own money and takes all the risk, so it wants strong collateral, a big down payment, and a business with hard assets it can seize if things go wrong. That's a tough ask when you're buying a service business whose value is mostly goodwill, reputation, customers, cash flow, not equipment.
An SBA 7(a) loan is still a bank loan, but the government guarantees a large share of it. That guarantee is what lets the bank say yes to a 10%-down deal built on goodwill. In exchange, you follow SBA rules, pay a guarantee fee, and do more paperwork. The SBA program exists precisely to fund the deals conventional lenders decline.
The SBA doesn't lend you money. It removes the bank's excuse to say no.
Side by side
| Factor | SBA 7(a) | Conventional |
|---|---|---|
| Down payment | 10% minimum | 20%, 30%+ |
| Term | Up to 10 yr (25 w/ real estate) | 3 to 7 yr typical |
| Rate (2026) | ~9.5%, 11.75% variable | Often lower, if you qualify |
| Prepayment penalty | None under 15-yr terms | Common |
| Finances goodwill? | Yes | Rarely / limited |
| Personal guarantee | Yes (20%+ owners) | Yes, usually + collateral |
| Working capital in loan? | Yes | Usually separate |
| Speed to close | ~60 to 90 days | Often faster |
| Max loan | $5,000,000 (7(a)) | No fixed cap |
| Fees | SBA guarantee fee | No SBA fee |
Rates above use WSJ Prime of 6.75% (July 2026); SBA acquisition loans are typically variable at Prime plus a lender spread capped by loan size. Confirm the live rate with your lender.
The down payment is the deciding factor
For most buyers, this is the whole game. On a $1,000,000 business, the SBA path needs about $100,000 down; a conventional lender at 25% wants $250,000. That $150,000 difference is why the SBA route dominates first-time acquisitions, it's the gap between "I can do this deal" and "I can't."
| Loan | Down % | Cash needed |
|---|---|---|
| SBA 7(a) | 10% | $100,000 |
| Conventional (low) | 20% | $200,000 |
| Conventional (typical) | 25% | $250,000 |
And with the SBA, a seller note on full standby can cover up to half of even that 10%, dropping your cash to as little as 5% of the price. Run the numbers in the max purchase price tool.
When each one wins
Choose the SBA 7(a) when…
- You have limited cash and need the low 10% down.
- The business is mostly goodwill (service, e-commerce, agency) with few hard assets.
- You want a long term and no prepayment penalty.
- You want to roll working capital into the loan.
Choose conventional when…
- You have strong collateral and cash and can put 20 to 30% down comfortably.
- The business has substantial hard assets (real estate, equipment).
- You want a potentially lower rate and to skip the SBA fee and paperwork.
- The deal is above the $5M 7(a) limit.
You can blend them
Some deals use conventional financing for real estate and an SBA loan for the operating business, or combine either with seller financing. The "right" loan isn't always one loan.
See what you can actually afford
Compare the payment and cash-down under each structure.
Frequently asked questions
For most first-time buyers, yes. The SBA 7(a) needs as little as 10% down, offers a 10-year term with no prepayment penalty under 15 years, and finances goodwill. Conventional can be cheaper and faster but usually wants 20%, 30% down and hard collateral.
An SBA 7(a) acquisition typically requires a 10% minimum injection. A conventional acquisition loan usually requires 20%, 30% down, and often more when the purchase is mostly goodwill.
Almost always. SBA requires a personal guarantee from every 20%+ owner. Conventional lenders typically require one too, plus more collateral. Neither is truly non-recourse for a small-business purchase.
When you have strong collateral and cash, the business has substantial hard assets, and you want a lower rate or to avoid the SBA fee and paperwork. It's also an option above the $5 million 7(a) limit.
Sources
- SBA 7(a) terms, down payment, guarantee, and $5M cap, sba.gov 7(a) program; SOP 50 10 8.
- 2026 rate environment (WSJ Prime 6.75%) and conventional acquisition-loan norms, lender guidance incl. Live Oak Bank and NAGGL (2025 to 2026).
