An owner-operator buying an HVAC or plumbing company with up to $5 million of debt usually uses an SBA 7(a) loan: a term of up to 10 years (up to 25 where real estate is included), an equity injection of at least 10% for a complete change of ownership, and a personal guarantee from every owner of 20% or more. Larger deals, and buyers with a sponsor behind them, use conventional senior debt, commonly 2x to 3.5x EBITDA. Either way the lender underwrites four things: how much revenue recurs, whether the technicians stay, how seasonal the cash is, and how much of the business depends on the seller.
- Usual structure
- SBA 7(a) up to $5 million; conventional senior debt above that or for sponsor-backed buyers
- Equity (SBA, complete change of ownership)
- At least 10% of total project costs
- Coverage lenders look for
- SBA: at least 1.15x, and 1.25x on historical results for a change of ownership from 1 October 2026; conventional banks commonly 1.25x
- What lenders probe hardest
- Service-agreement base, technician retention, the license holder, seasonality, owner add-backs
- Documents beyond the standard list
- Service-agreement roster, technician roster, license details, revenue by line of work
Why lenders like the trade, and what worries them
Heating, cooling and plumbing are needs, not wants. When a furnace fails in January or a water heater floods a basement, the homeowner calls someone that day, and the bill gets paid. That is why lenders treat established home-services contractors as one of the more financeable small-business acquisitions: demand does not disappear in a downturn, the customer base is local and diversified, and the business usually has trucks, tools and receivables behind it. The SBA lending data for plumbing, heating and air-conditioning contractors shows how many lenders are active in the trade and how acquisition loans there compare with the rest of the program.
What worries a lender is not the trade. It is the particular company. A contractor that looks steady on its tax return can be three different businesses underneath: a maintenance-and-repair shop with a loyal base, a replacement installer living on marketing spend, or a new-construction sub waiting on builders. Each has a different risk when the owner walks out the door. The underwriting question is always the same one: which of these earnings will still be here in the second year after closing, under a new owner?
A lender does not finance the seller's business. It finances the business the buyer will own, which is the seller's business minus whatever leaves with the seller.
Recurring revenue: what lenders count and what they discount
Buyers and brokers talk about recurring revenue in home services as if it were one thing. Lenders break it into parts, because each part behaves differently when ownership changes.
| Revenue line | How a lender reads it | What proves it |
|---|---|---|
| Service agreements (maintenance plans) | The most valued line: contracted, renewing, and the source of repair and replacement calls later | A roster of active agreements with start dates, renewal history and price; cancellations by year |
| Repair and service calls | Recurring in practice if the same households call back; depends on the phone number, reputation and dispatch staying intact | Customer counts and repeat-customer rates from the dispatch or field-service software |
| Replacement installs (residential) | Strong margins but lumpy and driven by marketing and lead cost; lenders want to see it hold up across years | Revenue and gross margin by year, lead sources, marketing spend |
| New construction | The most cyclical line; tied to a few builders and to housing starts; often thinner margins | Builder concentration, backlog, payment terms and retainage |
| Commercial service contracts | Valued if contracts are assignable and not concentrated in one or two property managers | Contracts, assignment clauses, customer concentration |
Two companies with the same earnings can therefore support very different loans. A company whose revenue is mostly service agreements and repeat service calls has a floor under it; a company whose revenue is mostly new-construction installs has a ceiling over it. When the mix leans toward the cyclical lines, lenders tend to size more conservatively, ask for more equity, or look harder at the last full year against the years before it.
Technicians, the license and the seller
A home-services company's capacity is its licensed technicians. Lenders ask how many there are, how long they have been there, how they are paid, and whether any of them is likely to follow the seller out or start a competing shop. A buyer who can show that the lead technicians and the service manager are staying, ideally with retention arrangements in place before closing, answers the question before it is asked.
The trade license is a question many buyers find late. In many states a contracting license is held by a qualifying individual, and in a small company that individual is often the seller. If the seller is the qualifier, the business may not be able to operate legally the day after closing unless the buyer holds the license, a staying employee qualifies, or a transition arrangement is agreed. Lenders will ask who the qualifier is going to be; the answer belongs in the file, not in a condition discovered at closing.
Owner dependence shows up in who quotes the big jobs, whose name is on the builder and property-manager relationships, and whose reputation brings in the work. A seller who has already handed dispatch and sales to a manager makes for a much easier credit than one who is the business. Where the seller is central, lenders look for a real transition plan and often for a seller note, because a seller who is still owed money has a reason to make the handover work. In an SBA-financed complete change of ownership the seller may not stay on as an owner, officer or employee; the seller may consult for up to 12 months (up to 24 months under SOP 50 10 8.1 from 1 October 2026), so the handover has to fit inside that window. See seller notes and SBA's full-standby rule for how that note must be structured beside an SBA loan.
Seasonality and working capital
HVAC cash comes in waves: the first hot week of summer and the first cold week of winter fill the schedule, and the shoulder months are quiet. Plumbing is steadier but has its own swings. Lenders look at monthly revenue, not just annual totals, because a loan payment is due every month, including the slow ones.
Two consequences follow. First, lenders want to see enough cash or an available line at closing to carry payroll and loan payments through the trough; an acquisition that uses every dollar of the buyer's cash on the purchase price and leaves nothing for working capital is a common reason a file is sent back. Second, if the business carries meaningful receivables from commercial or construction customers, a working capital line alongside the term loan is worth sizing properly. How lenders do that is set out in how lenders size a working capital line.
How lenders treat the add-backs
Owner-operated contractors rarely report earnings the way a lender measures them. The owner's truck, the family members on payroll, the owner's salary set for tax reasons rather than market pay: all of these change what the business really earns. Lenders accept add-backs that are documented and that will genuinely go away after closing. They reject ones that are really ongoing costs.
| Common add-back | How lenders usually treat it |
|---|---|
| Seller's salary above market | Credited only after deducting a market salary for whoever will run the company, whether that is the buyer or a hired manager |
| Family members on payroll who do not work in the business | Credited if payroll records and the buyer's plan show the cost ends at closing |
| Personal vehicles, fuel and phones run through the business | Credited when itemized; a truck that is actually used for service calls is not an add-back |
| One-time repairs, legal costs or a lawsuit settlement | Credited with invoices showing the cost does not recur |
| Deferred truck and equipment replacement | Not an add-back; lenders often deduct a replacement allowance instead |
| Unpaid owner labor on jobs | Works against the buyer: if the seller turns wrenches for free, a lender will deduct the cost of replacing that labor |
The lender then measures coverage on the adjusted figure. A simple case: if adjusted earnings available for debt service are 1,250 and the annual payments on all the debt are 1,000, coverage is 1.25x, the level conventional bank lenders commonly look for and, from 1 October 2026, the level SBA requires a change of ownership to show on historical results (SBA's general minimum is 1.15x). If an add-back the seller claimed is rejected and earnings fall to 1,100, coverage drops below both lines and the loan has to shrink or the equity has to grow. More on the rules in EBITDA add-backs and debt service coverage ratio.
SBA 7(a) or a conventional loan
For most owner-operator buyers of a single contractor, SBA 7(a) is the natural fit: it finances goodwill, which is most of what a service business sells for, over a longer term than a conventional lender will, with a smaller equity check. Conventional senior debt fits larger companies, buyers with a sponsor, and platforms buying several contractors, where the SBA's limits and rules on ownership start to bind. The full comparison is in SBA 7(a) vs a conventional loan for an acquisition.
| SBA 7(a) | Conventional senior debt | |
|---|---|---|
| Size | Up to $5 million | Sized to earnings, commonly 2x to 3.5x EBITDA |
| Term for goodwill | Up to 10 years; up to 25 years for real estate | Usually shorter, often with a balloon at maturity |
| Buyer equity | At least 10% of project costs for a complete change of ownership | Usually more, depending on the lender and the deal |
| Seller financing | Counts for up to half of the injection only on full standby for the life of the loan | Subordinated, with payments allowed if covenants are met |
| Guarantees | Every owner of 20% or more | Negotiated; often limited or none for sponsor-backed buyers |
| Fits best | An owner-operator buying one company | Larger companies and buyers assembling several |
Buyers planning to buy more than one contractor should think about the second acquisition before closing the first. An SBA loan can finance a later purchase, but the program's limits apply to the borrower and its affiliates together. Buyers building a platform often start conventional for that reason; see financing add-on acquisitions.
What goes in the file
Lenders need the standard acquisition documents, set out in what lenders need to finance an acquisition: the target's business tax returns for two to three years, its P&L and balance sheet, its latest full year of figures (never an older year), a year-to-date P&L, the debt schedule, the signed letter of intent, and each 20% owner's personal tax returns and personal financial statement. For a contractor, four more items shorten underwriting:
- A service-agreement roster: number of active agreements, price, start date and renewal history.
- A technician and staff roster: role, tenure, license, and who is staying.
- Revenue by line of work (service, replacement, new construction, commercial) for each year.
- The license position: who the qualifier is today and who will be after closing.
Transparent builds the lender package for a contractor acquisition, the financing model, lender presentation, blind teaser and underwriting memo, in a day once the documents are in, and takes it to the lenders in its book that finance the trade. What those documents are and why they matter is on the package.
Common questions
- Can I buy an HVAC company with an SBA loan and little money down?
- For a complete change of ownership, SBA requires an equity injection of at least 10% of total project costs. A seller note can count for up to half of that, but only if it is on full standby for the life of the SBA loan. Many lenders ask for more than the minimum when the company is heavily owner-dependent or its revenue leans on new construction.
- Do lenders value service agreements?
- Yes, more than any other revenue line, because they renew and they generate repair and replacement work. Lenders want to see the roster, the renewal history and the price, not just a count. A large base of agreements that were sold at a discount and rarely renew is worth less than a smaller base that renews year after year.
- What if the seller holds the contracting license?
- Then the buyer needs a plan for who will qualify the license after closing: the buyer, a staying employee, or a transition arrangement with the seller. With an SBA loan the seller cannot stay on as an employee after a complete change of ownership, only as a consultant for up to 12 months (up to 24 months from 1 October 2026), so any license arrangement that relies on the seller has to fit inside that window. Lenders will ask, and a deal where the business cannot legally operate on day one will not close.
- How do lenders handle seasonality in the numbers?
- They look at monthly revenue and cash, not just the annual totals, and they want enough cash or an available line after closing to carry payroll and loan payments through the slow months.
- Is a plumbing company underwritten differently from an HVAC company?
- The framework is the same. Plumbing tends to be less seasonal and more repair-driven, which lenders like; HVAC tends to have larger replacement tickets and more service agreements. What matters more than the trade is the revenue mix, the technicians and the seller's role.