Deal StructureApril 2025 · 7 min read

Buyer Financing Alternatives for Home Service Business Acquisitions

Q: Do PE buyers use SBA loans?

No — PE firms use committed fund capital and/or leveraged buyout financing (senior bank debt, sometimes subordinated debt). They don't use SBA because SBA has size limits ($5M) that are below most PE deal sizes, and because PE buyers don't meet the SBA's owner-operator criteria.

SBA 7(a) isn't the only financing option for buyers. Here's a breakdown of all acquisition financing methods and what each means for sellers.

Jason Taken

HedgeStone Business Advisors

Sellers often assume all buyers use SBA loans. In reality, there are multiple financing methods buyers use — and understanding each helps sellers evaluate offers beyond just the headline price.

SBA 7(a) Loans — The Most Common

SBA 7(a) loans finance 80–90% of the purchase price at 90–180 day close timelines. Seller implication: you receive all cash at closing (minus any seller note required by SBA). Loan amounts up to $5M. Variable interest rates tied to prime. Requirements: business must have 2+ years of operating history, cash flow to service debt (DSCR 1.25x+), and buyer must contribute 10% equity. Most home service deals under $5M use this path.

Conventional Bank Loans

Conventional SBA-unguaranteed loans are available for business acquisition but require 20–30% down payment from the buyer (vs. 10% SBA). Better interest rates (typically 1–2% below SBA), faster close (60–90 days), and less documentation. These are most common when the buyer has significant liquid assets or when the business has substantial real estate collateral. Seller implication: faster close, all cash, but buyer needs more capital.

Self-Funded (Cash) Buyers

Cash buyers — individual buyers using savings/investments or PE/strategic buyers with committed capital — close fastest (30–60 days) and have no financing contingencies. The seller receives everything at closing with no lender approval risk. Cash buyers are most common in smaller deals ($500K–$1.5M) where buyers have sufficient savings, and in larger PE/strategic deals where institutional capital is already committed. Cash buyers have more negotiating leverage on non-price terms.

Rollover Equity + Partial Cash

In PE add-on acquisitions, sellers may receive 70–85% cash at close and rollover 15–30% into equity of the acquirer. This isn't 'financing' in the traditional sense — the PE firm has its own committed capital. But sellers need to understand what the rollover portion represents: you're receiving PE equity that will pay off (or not) when the platform eventually sells, typically 3–7 years later.

ESOP (Employee Stock Ownership Plan)

ESOPs allow a business to sell to its employees through a tax-advantaged structure. The ESOP borrows money (often with seller financing) to buy shares from the owner. ESOPs are complex, expensive to set up ($50K–$150K in legal/administration costs), and best suited for businesses with 20+ employees and $2M+ EBITDA. They offer sellers a unique tax benefit (Section 1042 capital gains deferral) that can save significant taxes. ESOPs are a meaningful path for owners who prioritize employee outcomes and tax efficiency over maximum price.

Frequently Asked Questions

Do PE buyers use SBA loans?

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