How do you finance a business acquisition that includes the real estate?

Four ways to structure it

When the seller owns the building the business operates from, the buyer has to decide whether to buy it, and if so, how to finance it alongside the business. The decision is usually made in the letter of intent, often without much thought, and it shapes the loan more than almost anything else in the deal.

Each can work. The right one depends on the size of the deal, how much of the price is property, how much cash the buyer has, and what the business needs after closing. The rest of this page takes them in turn.

One 7(a) loan with a blended term

The simplest structure puts everything in one SBA 7(a) loan. SBA allows up to 25 years for real estate and up to 10 years for goodwill, working capital and most equipment. Where one loan finances several of these, lenders set a single maturity weighted by the share of proceeds going to each, which is explained in SBA blended maturity. From 1 October 2026, under SOP 50 10 8.1, a change-of-ownership loan amortizes over no more than 10 years except for the real estate share, so the property is what lengthens the schedule.

The longer schedule is where the payment relief comes from. Leave interest aside for a moment. A loan of 1,000 repaid over 10 years retires 100 of principal a year. The same 1,000 over 25 years retires 40 a year. Interest narrows the gap but does not close it, so the annual debt service on a property-heavy loan is noticeably lower than on a loan that is all goodwill, and the debt service coverage improves with it.

Three things come with it. The whole amount counts against the 7(a) limit of $5 million. The property is appraised, and the loan for it rests on the appraised value, not the price the seller put on it. And a 7(a) loan with a maturity of 15 years or more carries SBA's prepayment charge: prepaying more than 25% in any of the first three years costs 5% of the prepaid amount in year one, 3% in year two and 1% in year three. A buyer who expects to refinance or sell early should know that before choosing the structure.

Pairing a 7(a) with a 504

The SBA 504 program finances owner-occupied real estate and long-life equipment. A typical project is funded 50% by a bank in first position, 40% by a Certified Development Company in second, and 10% by the borrower. The borrower's share rises to 15% for a new business or a special-purpose property, and 20% where both apply. The business must occupy at least 51% of an existing building.

In an acquisition, the buyer uses a 7(a) for the business and a 504 for the building. Two features make this attractive on larger deals. First, since July 2026 the 504 and 7(a) limits are counted separately, so the property does not use up 7(a) capacity the business needs; the CDC's share alone can reach $5 million, or $5.5 million for manufacturers and energy projects. Second, the 504's long fixed-rate CDC portion suits a building the buyer means to hold.

The cost is complexity: two lenders and a CDC, two sets of closing conditions, and a closing that has to land both loans together. It is most worth doing when the property is a substantial share of the price or the combined deal would press against the 7(a) limit. For deals above that limit altogether, see financing an acquisition bigger than the SBA limit.

How the property changes the equity

Buyers often assume the building makes the deal easier to finance because it is hard collateral. On payments and collateral, it does. On equity, it usually does the opposite. In a complete change of ownership under 7(a), SBA requires an equity injection of at least 10% of total project costs, and the property is part of the project. Buying the building raises the injection required.

The equity is only part of it. Appraisals, environmental reports, title and the property's share of closing costs are also paid at closing. A buyer with a fixed amount of cash who stretches to buy the building can close with the minimum injection and very little else, and that is when trouble starts. The first months after a sale are when the business most needs a cushion, and working capital at close explains how to size it. How much equity lenders want in general is on how much equity you need to buy a business.

Owning the building can lower the annual payment and still leave the business short of cash in month three. Check both before choosing.

Appraisals and the price allocated to the property

The purchase agreement splits the price between the business and the property, a purchase price allocation that matters for tax and for financing. The lender lends on the property's appraised value. If the seller allocated more to the building than it appraises for, the difference is treated like goodwill: financed over the shorter term, supported only by cash flow, and in some deals not financed at all.

The appraisal also feeds SBA's business valuation rule. Where the amount financed, less appraised real estate and equipment, exceeds $250,000, or buyer and seller are related, SBA requires an independent business valuation, and the loan for the purchase cannot exceed it. The appraised real estate is taken out of that test, so an honest allocation helps both reports agree; the valuation itself is covered in SBA's business valuation requirement.

Commercial property also brings an environmental review. For businesses that handle fuel, solvents or chemicals, such as gas stations, dry cleaners and auto repair shops, that review can decide whether the property can be financed at all, and it should be ordered early.

A separate mortgage, or leaving the building with the seller

A separate conventional mortgage makes sense when the buyer has strong equity, a bank already wants the relationship, or the property is not owner-occupied enough for SBA. Conventional commercial mortgages usually amortize over a longer schedule than they last, with a balloon at maturity; the difference is explained in loan term vs amortization period. The business lender and the mortgage lender will each want first position on their own collateral, so the liens have to be agreed between them.

Leaving the property with the seller is often the best answer for a buyer whose cash is limited. The seller becomes the landlord and keeps an income, which many retiring owners prefer. The buyer's equity goes into the business instead of a building. The lender's questions shift to the lease: it should run at least as long as the loan, with renewal options, at a rent the business can pay, and it must allow a collateral assignment to the lender, which lenders commonly take. Why the landlord lease matters covers what lenders check, and buying the building vs leasing it from the seller compares the two side by side.

A lease can also carry an option to buy later, once the buyer's equity has grown. Some buyers hold property in a separate entity that leases to the operating company, which SBA recognizes as an eligible passive company; see propco and opco structures.

Choosing, and what the lender needs to see

A simple way to choose is to model the deal both ways before signing the letter of intent: with the property, and with a lease. Compare the annual debt service plus rent, the coverage, the equity required and the cash left in the business on day one. The right answer is usually obvious once all four are on one page.

For the lender, a deal with real estate needs everything in the standard acquisition file plus the property's details: the purchase agreement's allocation, any existing appraisal or survey, the environmental history, and, if the seller keeps the building, the draft lease. Transparent builds both versions into the financing model and sets out in the lender presentation why the structure chosen is the right one. With 278 lenders in the book writing SBA 7(a) and 504, the paired structure can go to lenders who close it routinely. The full contents are on the package.