An owner-operator buying an electrical contractor usually finances it with an SBA 7(a) loan: up to $5 million, up to 10 years for the goodwill, and an equity injection of at least 10% for a complete change of ownership. Larger shops and sponsor-backed buyers use conventional senior debt. Lenders underwrite the mix of service and project work, the backlog and work-in-progress schedule, who will hold the license, whether the crews stay and, for bonded work, whether a surety will back the new owner. Acquisition debt and goodwill weaken the balance sheet a surety measures, so the financing and the bonding have to be planned together.
- Usual structure
- SBA 7(a) up to $5 million; conventional senior debt for larger or sponsor-backed deals
- Equity (SBA, complete change of ownership)
- At least 10% of total project costs
- The document that decides a project shop
- The work-in-progress (WIP) schedule, with backlog and job-cost history
- The second underwriter
- The surety, for any company that bids bonded work
- The day-one question
- Who holds the contractor's license after closing
Service shop or project shop
"Electrical contractor" covers businesses that a lender underwrites very differently. A service shop running trucks to repair calls and maintenance contracts earns steadily from many small customers. A project shop bidding tenant improvements and new construction for general contractors earns in large, uneven pieces from a few relationships, with cash tied up in receivables and retainage. Most companies are a mix, and the first thing a lender does is work out the proportions, because the proportions decide how much debt the earnings can carry.
| Type of work | How it earns | How a lender reads it |
|---|---|---|
| Service and repair | Many small tickets, paid quickly | The steadiest line; valued if call volume holds up across years |
| Maintenance and plant contracts | Recurring work under master service agreements with facilities | Close to recurring revenue, if the agreements can move to the buyer |
| Commercial projects and tenant improvements | Bid work for general contractors, billed by progress | Lumpy and concentrated in a few GCs; underwritten on backlog, margin history and receivables |
| New residential construction | Per-house wiring for builders | The most cyclical; tied to housing starts and a handful of builders |
| Specialty (low voltage, controls, solar, EV charging) | Mix of projects and service | Assessed on its own margins; newer lines need a track record before lenders give them full weight |
The program data shows why these files are read closely. On the SBA lending data for electrical contractors, acquisitions are a smaller share of approvals than across the program, and acquisition loans run far larger than the trade's typical SBA loan, which is mostly small loans. An acquisition is the unusual file in this industry, and the lender will want to understand every line of work in it.
Backlog and the work-in-progress schedule
For any company doing project work, the WIP schedule is the most important document in the file. It lists every open job with its contract value, estimated cost, cost to date, billings to date and the profit expected. Read properly, it tells a lender whether the income statement is real, whether cash has been collected ahead of the work, and whether margins are holding.
| Term | What it means | What a lender reads into it |
|---|---|---|
| Over-billing (billings in excess of costs and estimated earnings) | The company has billed more than the work done so far | Cash collected for work still to be done; after closing, the buyer does that work without the cash |
| Under-billing (costs and estimated earnings in excess of billings) | Work done but not yet billed | Sometimes timing; sometimes cost overruns or change orders the customer has not agreed to |
| Profit fade | A job's expected margin falling as it nears completion | Estimates that are too optimistic; lenders compare estimated and final margins on completed jobs |
| Backlog | Signed work not yet performed | Visibility for the first year after closing, if its margin is in line with history |
| Retainage | Part of each progress bill the customer holds until the job is done | Earned but slow cash, and often excluded from a borrowing base |
A simple case shows why over-billing matters in a purchase. A job with a contract value of 1,000 and estimated cost of 800 is half complete once 400 of cost has gone in, so the company has earned 500. If it has already billed 600, 100 of cash has come in for work not yet done. If the seller keeps that cash, the buyer finishes the job with its own money. Buyers deal with this through the price or the working capital peg, and lenders check that they have.
Ask for the WIP schedules at the last few year-ends and compare the margins they predicted with the margins the jobs actually made. That comparison is the lender's test of the seller's estimating.
Bonding: the second underwriter
Public work and much commercial work require performance and payment bonds. The surety that issues them underwrites the contractor much as a lender would, looking at working capital, net worth, the WIP schedule and the owners' personal finances, and the owners sign a personal indemnity. A bonding line does not pass to a buyer automatically. The surety re-underwrites the company under its new owner, and the buyer becomes the indemnitor.
The tension is that acquisition financing weakens exactly what a surety measures. Debt reduces working capital, and the goodwill created by the purchase is typically excluded from the net worth a surety counts. A heavily leveraged purchase can therefore shrink the company's bonding capacity just as the buyer needs it to keep bidding. Buyers of a bonded shop should get a surety's indication before closing and shape the structure around it: more equity, a longer amortization, working capital left in the business, or a seller note on terms the surety accepts. For small contractors, SBA also runs a separate surety bond guarantee program.
Jobs already bonded at closing need a plan too. The seller's indemnity usually stays in place on those jobs until they finish unless the surety agrees otherwise, and sellers will want that addressed in the purchase agreement.
The license, the crews and the union question
Electrical work is licensed at the state or local level, and a contracting company usually operates under a license held by a qualifying individual. In a small shop, that is often the seller. A lender will ask who the qualifier will be on the day after closing: the buyer, if licensed; a licensed employee who is staying; or a new hire. In many states the qualifier must be an officer or employee of the company. In an SBA change of ownership the seller may not remain an owner, officer or employee, only a consultant for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026. So the seller's license generally cannot be the long-term answer in an SBA deal. Check the state's rule early.
The crews are the capacity. Lenders look at the number of licensed journeymen and apprentices, tenure, and above all the foremen, estimators and project managers who win and run the work. If one estimator produces most of the bids, that person matters to the credit nearly as much as the seller does. A buyer without trade experience can still get financed with strong managers staying; see whether lenders require industry experience.
Union shops raise one more question. Contributions to a multiemployer pension plan can carry withdrawal liability, and construction has its own rules about when that liability is triggered. Whether the deal is an asset or stock purchase, and whether the buyer keeps contributing, both matter. That needs a labor lawyer's read before closing, and the lender will want to see it was done. Public work adds prevailing-wage and certified-payroll compliance to the diligence list.
Receivables, retainage and working capital
General contractors pay slowly, often only when they are paid, and hold retainage until the job closes out. A project-heavy electrical contractor therefore carries large receivables and needs working capital to fund payroll and materials in between. Asset-based lenders typically advance 80% to 90% of eligible receivables, but retainage, receivables more than 90 days past invoice, and concentration above a cap, commonly 20% to 25% of eligible receivables for any one customer, fall out of the base. For a shop that works for three or four GCs, that cap binds quickly. See lines of credit for electrical contractors and borrowing against a signed contract or backlog.
The acquisition has to leave enough working capital in the business to run the backlog it is buying. Lenders and sureties both look for it, and a purchase that strips the balance sheet to pay the seller is a common reason files come back. How much to finance is covered in how much working capital to finance when buying a business.
Structuring the purchase
SBA 7(a) fits most owner-operator purchases. Goodwill is financed over up to 10 years; bucket trucks, lifts and trenchers can sit inside the loan or be financed separately. In a 7(a) loan, equipment can normally run up to 15 years if its useful life supports it, but from 1 October 2026 a change-of-ownership loan amortizes over no more than 10 years except the real estate share, so equipment bought with the company is held to 10; see equipment financing vs an SBA 7(a) loan. SBA requires coverage of at least 1.15x, and from 1 October 2026 a change of ownership must show 1.25x on historical results. SBA prohibits an earnout to the seller, so a price that depends on backlog converting is usually bridged with a seller note; one on full standby for the life of the loan can count for up to half of the equity injection. Larger companies go to conventional senior debt, commonly 2x to 3.5x EBITDA.
Whether the buyer purchases assets or stock changes more in contracting than in most trades:
| Issue | Asset purchase | Stock purchase |
|---|---|---|
| Contracts in progress | Each must be assigned, usually with the customer's consent | Stay with the company |
| License | The buyer's company needs its own license and qualifier | The company's license continues if the qualifier stays or is replaced in time |
| Bonding | New bonds for the new company; the surety underwrites from scratch | The surety re-underwrites the existing company under new owners |
| Past-job liabilities | Generally stay with the seller | Come with the company: warranty and defect claims on past work, tax and payroll issues |
| Union obligations | Depend on whether the buyer adopts the agreement | Continue with the company |
The general trade-offs are on asset purchase vs stock purchase.
What goes in the file
The standard SBA acquisition list comes first: the company's tax returns for two to three years, P&L, balance sheet, year-to-date P&L, debt schedule, the signed letter of intent, the latest full year of figures (never an older year), and each 20% owner's personal returns and personal financial statement; see what lenders need to finance an acquisition. For an electrical contractor, add:
- WIP schedules at the last few year-ends and the most recent month-end.
- A backlog report with expected margin by job.
- Job-cost reports on completed jobs, to show estimated against actual margin.
- An AR aging by customer with retainage shown separately.
- Revenue by customer and by type of work for each year.
- License details and the qualifier plan, the surety's bonding letter, and an equipment list.
Sureties often want financial statements reviewed by a CPA, and lenders value them too; see audited, reviewed or compiled statements. Transparent builds the lender package from these documents, the financing model, lender presentation, blind teaser and underwriting memo, in a day once they are in; see the package.
Common questions
- Can I buy an electrical contractor if I am not a licensed electrician?
- Often, yes, if a licensed qualifier will be in place from day one, whether a staying employee or a new hire, and the managers who estimate and run the work are staying. Lenders assess whether the buyer can manage the business, not whether the buyer can pull wire.
- Does the seller's bonding line transfer to me?
- No. The surety re-underwrites the company under its new owner, and the buyer signs the indemnity. Because acquisition debt and goodwill weaken the measures a surety uses, get the surety's view before the financing structure is final.
- What happens to jobs that are half finished at closing?
- They are on the WIP schedule. If the company has billed ahead of the work, the buyer inherits the work without the cash, so the price or the working capital peg should account for it. In an asset purchase, each contract also has to be assigned.
- Can the seller stay on as the license holder?
- Not as an owner, officer or employee after an SBA-financed complete change of ownership. The seller can consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026, and many states require the qualifier to be an officer or employee, so plan a different qualifier.
- Do lenders prefer service work or project work?
- Service and maintenance revenue is steadier and supports more debt for the same earnings. Project work is fine to finance, but lenders size it on backlog, margin history and the WIP schedule, and they watch concentration in a few general contractors.