An individual buyer is one entrepreneur who wants to own and run your company. A buyer who uses a bank loan backed by the U.S. Small Business Administration (SBA) can borrow most of the cost. The SBA's guarantee is a promise to cover part of the bank's loss if the loan goes unpaid. This is one of the six types of buyers a founder may meet.
The buyer borrows from a bank, and the SBA guarantees part of the loan to the bank. The SBA's 7(a) program lists changes of ownership, complete or partial, among its approved uses and caps a loan at $5M.
The buyer applies through a local lender and must "demonstrate a reasonable ability to repay the loan." Under federal regulation, holders of at least 20% of the company generally must guarantee the loan, meaning they promise to repay it if the company cannot.
Expect the lender to review three years of your financial statements, check your tax figures against IRS records, get a valuation, and visit your location. For a purchase of $3M or more, the lender also requires an independent review of your earnings.
What buyers look for in a data room covers how to get your records ready for a buyer and a lender.
A seller note is a loan you make to the buyer for part of the price. Under SBA rules, a note that ranks behind the bank and is on full standby, meaning no payments of principal or interest for the 7(a) loan's term, may count toward the buyer's required equity.
The SBA requires the buyer to make a contribution to the purchase, called an equity injection. For a buyer who becomes the new majority owner, the minimum is 10% of the total project cost, meaning all costs required to become operational.
Seller debt without full standby is allowed, with all the debt together limited to the valuation amount.
Plan on more steps than a sale to a buyer paying from cash on hand. The lender will usually order a valuation, verify your tax records, and visit your location before it approves the loan and closing can happen. Ask the buyer for the lender's schedule in writing.
The valuation may come in below your price, and the lender may decline the loan. The buyer is one person who carries a loan and may be new to owning a company. A note on full standby sits behind the bank and receives no payments during the loan's term. SBA rules limit what you keep after closing.
Confirm the tax and legal terms of any sale with your own attorney and accountant.
It suits a founder whose company is priced within what one person can finance and who wants a clean handoff. The buyer is one owner who will run it in person. A founder who wants a continuing stake or a job with the company should consider other buyers.
Ask the buyer about their cash, their financing, and your note, and have the buyer take your questions about records and timing to the lender. Our piece on whose money it is covers the first question.
Ask the buyer
Ask the lender, through the buyer
HarborWind Partners is a buyer. We acquire, transform, and hold founder-led businesses, preserving legacies while compounding value. Our range is $2M–$8M in EBITDA, a measure of annual operating profit. Our sectors are niche manufacturing, specialty chemicals, and industrial and essential B2B services. We are long-term holders with no fund timeline. A first conversation with us is confidential, unhurried, and without obligation. Read how we work with business owners.
No. The SBA says it does not provide 7(a) loans directly to borrowers. The buyer applies through a local lender, and the SBA guarantees part of the loan to that lender, a promise to cover part of the lender's loss if the loan goes unpaid.
When the buyer becomes the new majority owner, the SBA's loan procedures say the seller may not remain an officer, director, stockholder, or employee. You may consult for up to 24 months. A partial sale follows separate rules and requires at least one original owner to remain an owner and personally guarantee the loan.
For a buyer who becomes the new majority owner, the SBA sets a minimum equity injection, the buyer's required contribution, of 10% of the total project cost, meaning all costs required to become operational. The loan procedures say it cannot be reduced or eliminated. A seller note on full standby may count toward it.
The loan procedures require the valuation to support the purchase price. If the price is higher, the buyer must make up the difference with equity. You and the buyer can then agree on a lower price, or the deal can end.
Buy. Build. Compound.