Smaller agencies are usually bought with an SBA 7(a) loan, which can finance goodwill over up to 10 years with at least 10% equity from the buyer. Larger agencies with diversified clients and steady margins can also borrow from conventional cash-flow lenders and private credit funds. Either way, lenders underwrite net revenue after pass-through media and production costs, client tenure and concentration, the notice periods in client contracts, and whether the people who hold the client relationships stay. Because agency sellers often want an earnout, and SBA prohibits one, the price gap is usually bridged with a seller note instead.
- Usual structure
- SBA 7(a) for smaller agencies; conventional or private credit for larger, diversified ones
- Equity (SBA, complete change of ownership)
- At least 10% of total project costs
- The revenue a lender counts
- Net revenue after media and production passed through to clients
- The biggest risk
- Clients and the people who serve them leaving after closing
- What SBA will not allow
- An earnout to the seller
Clients who can leave, and people who can follow them
A marketing agency's assets go home every night. There is a laptop fleet, some software subscriptions and a leased office, and nearly all of the price is goodwill. What a lender is really financing is a set of client relationships, many of them on contracts a client can end with a month's notice, and the account leads, strategists and creatives who keep those clients happy. The question the whole file answers is whether revenue survives the change of owner.
Lenders do finance these purchases, and at meaningful sizes. The SBA lending data for advertising agencies shows acquisitions making up about the same share of approvals as across the whole program, and acquisition loans running far larger than the industry's typical SBA loan. Almost none of the industry's SBA borrowers are start-ups or franchisees: these are established firms borrowing against earnings. For consultancies that sell strategy rather than media and creative work, see the marketing consulting data and financing a consulting firm acquisition.
Gross billings are not revenue
Many agencies report revenue that includes money passing straight through them: media bought on a client's behalf, printing, production crews, influencer fees and software resold at cost plus a small markup. A lender strips that out and looks at net revenue, sometimes called agency gross income, because that is what pays the staff and produces the margin.
A simple case: an agency bills 1,000 in a year, of which 600 is media and production passed through to clients. Its net revenue is 400. If it earns 80 before owner adjustments, that is a fifth of net revenue, a healthy agency margin, but only a twelfth of billings, which looks thin. A buyer who prices the agency on billings, or a lender who compares it with other agencies on billings, will get the wrong answer either way. An agency whose pass-through share has jumped may simply have taken on a large media client, which changes its risk more than its earnings.
| Revenue line | What it is | How a lender reads it |
|---|---|---|
| Retainers | Monthly fees for ongoing work | The most valued line; lenders check tenure and notice periods, not just the monthly amount |
| Project fees | Campaigns, websites, rebrands | Useful, but it must be re-won; lenders look at how much comes from repeat clients |
| Media commissions and markups | A percentage or fee on media bought for clients | Real earnings, but tied to client media budgets that are cut first in a downturn |
| Performance or incentive fees | Paid if a client's results hit targets | Discounted or excluded unless they recur year after year |
| Pass-through media and production | Costs rebilled to clients | Not revenue for underwriting; it inflates billings and receivables |
| Resold software or licenses | Tools billed through the agency | Thin margin; counted at its margin, not its gross |
Retention, notice periods and concentration
The single most useful schedule in an agency file is revenue by client, by year, for several years. From it a lender can see how long clients stay, how much of each year's revenue came from clients who were there the year before, and how much depends on the largest few. Long-tenured clients spread across industries read very differently from a book rebuilt every year from new projects.
Concentration is common in agencies, and lenders price it. One client making up a large share of net revenue is a risk to coverage, and if that client's contract has a short notice period the lender may run the numbers as if it left. Our page on customer concentration in acquisitions covers how lenders size a loan around it.
Contracts need reading, not just counting. Lenders look at term, notice period, renewal, and whether the agreement can be assigned or ends on a change of control. In an asset purchase each client agreement has to move to the buyer, and some need the client's consent; in a stock purchase a change-of-control clause can give the client the same exit. Large clients often have procurement teams that must approve a new owner. See change of control consents.
The founder, the account leads and the creative bench
In many agencies the founder wins the business and holds the senior client relationships. If the founder is leaving, the lender wants to see those relationships already shared with account leads who are staying, and ideally a record of clients the founder no longer personally manages. A founder who still takes every client call is the central risk in the file.
The rest of the team matters in the same way. Lenders ask for a staff roster with role, tenure and pay, and look for the people clients actually deal with. Retention bonuses for key staff, new employment agreements with non-solicitation terms, and key-person life insurance on anyone essential are common conditions. An agency that relies heavily on freelancers or offshore contractors for delivery is lighter on payroll but more exposed if those arrangements end.
SBA constrains how long the founder can help. In a complete change of ownership the seller may not stay as an owner, officer or employee, and may consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026. For an agency, that longer window gives more time to introduce the buyer to every significant client. The seller transition entry explains the rule.
Before the lender asks, list every client above a meaningful share of net revenue, who at the agency manages it, and how long that person has done so.
Media payables and working capital
Agencies that buy media for clients sit between two sets of payments. The agency commits to the media, bills the client and pays the media vendor when the client pays, or sometimes before. If a large client pays late or not at all, the agency can still owe the vendor. That makes the receivables and payables in an agency larger and more connected than its net revenue suggests, and lenders read the AR aging and AP aging side by side.
At closing this becomes a working capital question. The buyer needs enough cash to cover the gap between paying vendors and staff and collecting from clients, and the purchase agreement needs a working capital peg that accounts for media payables due soon after closing. After the purchase, a line of credit for a marketing agency can carry the timing. Asset-based lenders typically advance 80% to 90% of eligible receivables, treat receivables more than 90 days past invoice as ineligible, and commonly cap any single customer at 20% to 25% of eligible receivables, so a concentrated agency's line is often smaller than its receivables suggest.
Earnouts, seller notes and the rest of the structure
Agency sales are often priced with an earnout: part of the price paid only if clients stay and revenue holds. It is a natural fit for a business whose value can walk out the door, but SBA prohibits an earnout to the seller in a change of ownership it finances. With SBA money, the price has to be fixed at closing. The usual substitute is a seller note, which shares the risk in a different way: a seller who is owed money has a reason to make the transition work. Our page on earnouts and acquisition debt and the comparison of earnout vs seller note go further.
| Structure | When it fits an agency | Terms that matter |
|---|---|---|
| SBA 7(a) | Most owner-operator purchases up to $5 million | At least 10% equity; goodwill over up to 10 years; independent valuation above $250,000 net of real estate and equipment |
| Seller note on full standby | Bridging price and funding part of the equity | Counts for up to half the required equity only if no principal or interest is paid for the life of the SBA loan |
| Seller note paying currently | When the seller wants cash sooner | Allowed, but counted in debt service rather than equity |
| Conventional or private credit term loan | Larger agencies, diversified clients, or buyers with investors | Senior cash-flow lenders commonly lend 2x to 3.5x EBITDA; banks commonly look for coverage of at least 1.25x |
| Earnout | Only outside SBA financing | Conventional lenders will want it subordinated and limited while their loan is outstanding |
SBA also requires debt service coverage of at least 1.15x, and 1.0x globally including the owners; from 1 October 2026 a change of ownership must show 1.25x on historical results, and every change of ownership needs financial due diligence, with a quality of earnings report on acquisitions of $3 million or more excluding real estate. In an agency, that review will focus on revenue recognition, pass-through treatment and owner add-backs. Replacement cost for the founder, whether a new managing director or the buyer's own salary, comes out of earnings before coverage is measured; SDE vs EBITDA explains why.
Agencies over SBA's limits, or bought by an investor group or platform, move into conventional and private credit. That market is large: 1,148 lenders in Transparent's book write term and private credit. Those lenders care about the same things, retention and people, but price concentration and founder dependence more harshly. See acquisitions above the SBA limit.
What goes in the file
- The agency's business tax returns for 2–3 years, P&L and balance sheet, and a year-to-date P&L through last month-end
- Its latest full year of figures, never an older year, and the signed letter of intent
- Revenue by client by year, split into retainer, project, media and pass-through
- Copies of client agreements for the larger clients, with term, notice and assignment terms
- A staff roster with role, tenure, pay and which clients each person manages
- AR aging by client and AP aging, including media vendors
- A debt schedule
- For the buyer: personal tax returns for 2–3 years, a personal financial statement and a resume that shows agency or client-service management
Once the documents are in, Transparent builds the lender package in a day, including the net revenue bridge and client retention analysis a lender will otherwise ask for one question at a time. Built by hand, the same package takes at least a week.
Common questions
- Can I get an SBA loan to buy an agency with no hard assets?
- Yes. SBA 7(a) loans finance goodwill, and most agency purchases are almost entirely goodwill. Lenders make up for the missing collateral with close underwriting of clients and people, and every owner of 20% or more personally guarantees the loan.
- The seller wants an earnout. Can I still use SBA financing?
- Not with an earnout. SBA prohibits an earnout to the seller in a change of ownership it finances. A seller note, on full standby or paying currently, is the usual alternative.
- Do lenders use billings or net revenue?
- Net revenue. Media and production costs passed through to clients are stripped out, because they are not the agency's income and they distort margins.
- What if one client is a large share of revenue?
- Lenders will test whether the loan still works if that client leaves, read its contract for notice and change-of-control terms, and may size the loan down, require more equity or ask for a larger seller note.
- Can the founder stay to manage key clients?
- In an SBA-financed complete change of ownership the founder may not stay as an employee, but may consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026.