There is a general misconception in the small-business acquisition marketplace that a person could easily purchase any type of business through the SBA with a low down payment and get a loan for the rest. Most people also believe that SBA loans are a major source of small business financing. But data shows that SBA-guaranteed loans make up a small portion of the value of the overall small business lending market.

The SBA's primary business loan program - the 7(a) program - is designed to help businesses that otherwise might face challenges in getting approved for loans by guaranteeing a part of the funding provided by financial institutions.  The 7(a) program is used for a variety of business purposes and helps only about one percent of American businesses obtain loans, according to the U.S. Small Business Administration 2013 Congressional Budget Justification report. Since the business acquisition loan is only one type of loan the SBA provides, this means that SBA loans approved for business acquisitions is a fraction of one percent of all its loans.

With that said, specific criteria must be met in order to be approved for SBA financing for a small business acquisition. Here are three guidelines:

1. Cash Flow is King - All business acquisition loans are evaluated based on the historical cash flow reported in the business’s tax returns. The performance of the business subsequent to the most recent year’s tax returns is important, but your lender will be relying heavily on the cash flow reported in the tax returns to ensure that there is sufficient cash flow to repay the loan. Your lender will also be evaluating your personal financial situation to understand what your personal debt obligations are and how much money you need to withdraw, if any, from the cash flow of the business. Businesses with minimal or even negative cash flow can often still be financed if the borrower has a favorable personal financial situation.

2. Experience is Important -Your lender will want to know why you are qualified to own and operate the business you want to buy. If you don’t have experience owning, operating, or working within a similar type of business, you will need to make a strong case that you have professional experience that is "transferable" to your target business in order to qualify for SBA financing.

3. Create a Business Plan - Even borrowers with extremely strong industry experience will be asked, at a minimum, to create financial projections that reflect the borrower’s estimates of revenues and operating expenses after the business is purchased. Many lenders will require all borrowers applying for a business acquisition loan to provide a business plan, regardless of experience. Borrowers with less impressive resumes can attempt to mitigate their lack of experience by providing a thorough, comprehensive business plan that shows the lender they have completed a substantial amount of due diligence on the business being purchased. 

Also not well-understood, is that in the eyes of the SBA, not all business types are created equal. Some categories of small to medium size businesses are more likely to receive SBA loans than others. Mr. George Heaslip, known as “The Loan Professor,” is a SBA loan originator based in Florida with many years of experience. The following list represents his ranking of business types in alphabetical order using a 0-5 numerical rating, five being the most likely to receive loan approval.

3             A/C and Heating
2             Advertising / Promotion
0             Adult Merchandise
3             Agricultural (sod, seeds, equipment)
2             Aircraft Maintenance
1             Air Duct Cleaning
2             Alarm Companies (Residential and Industrial)
2             Amusement / Theme Parks with real estate
4             Animal Care & Grooming Facilities with R.E.
2.5         Animal Grooming, without real estate
2             Antiques Dealer
3             Appliance Sales / Repairs
2             Art Gallery
2             Arts and Crafts
2             Art Framing
4             Assisted Living Facilities, with real estate
4             Auto Body Shop, with real estate
3             Auto Body Shop, leased facility
4             Auto Car Wash, with real estate
3             Auto Dealership (new, larger facility)
0             Auto Delivery
2             Auto Glass
0             Automobiles, Rental
4             Auto Parts Shops, with real estate (including tires)
3             Auto Painting, with real estate
2             Auto Painting, without real estate
3             Auto Parts / Accessories, leased facility
2             Auto Repair Shops, with real estate
2.5         Auto Sales Centers, with real estate
2.5         Auto Salvage
1             Awards / Prizes Engraving
3.5         Baker, with real estate (in business several years)
2             Barges (sea transport)
3.5         Bar / Restaurant, with R.E. (operating several years)
1             Beauty Salons / Tanning Salons
3             Bed & Breakfast, established, with real estate
1             Billiard Parlor
3             Boat Storage Facilities, with real estate
0             Boat Tours
1             Book Store
1.5         Bookkeeping Services
1.5         Boutiques
3.5         Bowling Alley Lounge & Restaurant, with real estate
2             Bridal / Baby Shops
2             Building Materials
2.5         Building Renovations
1.5         Business Brokerage Franchise Offices
0             Cards, Greeting
2             Carpet Cleaning
4             Car Wash, Established, with real estate
1.5         Cartridges Refill (Printer)
0             Casino
3             Catering Facilities, Established, with real estate
3             Cement Products Manufacturer, with real estate
4             Child Care Centers, with real estate
2             Child Care Centers, without real estate
1.5         Chiropractic
0             Churches
0             Cigar Store
2             Cleaning, Clothing
3             Cleaning, Janitorial
3             Closet Interior Manufacturers
2             Clothing
3             Coin Laundry
0             Collection Agency
1             Computer Supplies
2             Construction / General Contractor
4             Consulting Companies with exceptional tax returns
3             Consignment Shops
3             Contractor, established
1             Convenience Stores, without real estate
2             Convenience Stores, with real estate
3             Crane Services (Construction / Equipment Install)
2             Damage Restoration
0             Data Management
3             Deli, with real estate
2             Delivery Services
4             Distribution Centers, with real estate
3             Distribution Centers, without real estate
5             Doctors
2             Document Shredding
4             Dog & Cat Kennels, with real estate
3             Dry Cleaners & Laundromats, without real estate
2             Dry Cleaners, with real estate
2             Educational / Schools
2             Embroidery Services, with commercial accounts
3             Electrical Contractors
2.5         Employment Placement Companies
3             Environmental Cleanup
1             Electronics / Computers
2             Equipment Sales, Service, & Rentals
3             Equipment Sales, Service & Rentals, with real estate
4             Equipment Suppliers / Installers
1             Event Planning
4             Export Products Manufacturers
4             Exterminating Companies
4             Fabrication Factories, with real estate
4             Factories (Manufacturing)
3             Farm Equipment Sales & Service
4             Fast Food Franchise, with R.E. (on Franchise registry)
1             Financing Related
2             Firearms
3.5         Fireplace & Furniture Manufacturers
2             Fish Farm
0             Fishing Vessels
3             Fitness Health Club, not leased
3             Flooring Contractor
2             Floral Center
2             Food Business, Retail
3             Freight Forwarding, with real estate
5             Funeral Homes, with real estate
0             Game Room
3.5         Garden Centers, Indoor & Outdoor, established & growing
2             Gas Station / Truck Stop, with real estate
1             Gas Station with Convenience Store
0             Gift Shop
3             Glass Company
1             Gourmet Catering
3.5         Gravel Pits & Dredge Companies
3             Grocery Store, with real estate
2             Grocery Store, without real estate
2             Guard Company, security
1             Gyms
0             Hair Salon
5             Hardware Stores, with R.E. & no big box competition
3             Health Products Store
1             Hobby Shops
4             Home Health Care Services
2             Hotels and Motels
1             Ice Cream / Yogurt Shops
0             Import Companies
2             Insurance Agencies (franchise)
4             Interior/Exterior Design Units Mfg (Closet,Fireplace,BBQ,Patio)
1             Internet Related
3             Janitorial
4             Janitorial Service Companies (incl. parking lots maintenance)
2             Jewelry / Retail
3.5         Landscaping with commercial accounts
1.5         Landscaping without commercial accounts
2             Landscaping companies with legal employees
4             Law Firm
0             Limo Business
3             Liquor Package Store, with real estate
2             Liquor Store without real estate
2             Locksmith
4             Machine Shop, with real estate
3             Machine Shop, without real estate
1             Maid Service
2             Mail Package Service
5             Manufacturing Facilities, with real estate
5             Manufacturing Facilities that export
4             Manufacturing Facilities, without real estate
3             Marinas, with real estate
3.5         Marinas, with established restaurant and real estate
2             Marine Related
1             Marketing Company
1             Massage
5             Medical Related, with real estate
4             Medical / Supplies / Distribution, leased facility
3.5         Metal Fabricators, with real estate and growth record
0             Micro Breweries
3.5         Millwrights
2             Movers
0             Non Profit Organizations
0             Nail Salon
2             Nursery / Plants
4.5         Nursing Home, with real estate
3             Nursing Home, without real estate
2             Nutritional Store, if a franchise on registry
2             Painters
2.5         Parking Lot Cleaning & Maintenance
1             Party Goods
4             Pawn Shops, if in a freestanding building
2             Personal Services
0             Personnel & Staffing
2             Pest Control
4             Pet Centers, with real estate
4             Pharmacies
5             Pharmacies that do compounding
1             Pizza Shop
0             Pressure Cleaning
4            Preschools, with real estate
2.5         Preschools, without real estate
1             Printing & Typesetting
3             Plumbing Supply
2.5         Pool and Spa
5             Recycling Facilities, established, with real estate
1             Rental Business
2             Repair Services, if licensed
4.5         Restaurants, with standalone bldg., in business many yrs
3             Restaurants, franchises, with excellent financial records
2             Restaurants, other
3             Retail Misc., with standalone bldg., in business many yrs
4             Retail, with 3 yrs of excellent historical cash flow)
3             Roofing Contractor
4             Roofing Maintenance
1             Routes
2             Security Systems
5             Self-Storage Facilities
2             Sign Companies
2             Site Preparation
0             Skin and Massage
2.5         Recreational Facilities and Clubs
1             Security Related
1             Shoes / Shoe Repairs
2             Skating Rinks, with real estate
2             Sod Distribution
3             Software Service, with 3 years steady growth
3             Sports Bar, established, with real estate
2             Sports Related
2             Sub Shop (Sandwiches)
1             Tailoring
1             Tax Preparation
1             Telephone Related
5             Therapy Centers and Therapy In-Home Services
1             Tobacco Related
3             Towing Service
3             Trade Contractor
4             Training School, with real estate
2             Training School, without real estate
2             Transportation
0             Travel Agency
2.5         Tree Farm
3             Truck Repair, with real estate
2             Truck Repair, without real estate
4             Truck and Car Washes, with real estate
4.5         Truck Fleet Service (Towing & Repair), with real estate
1             Tutoring
0             Valet Parking
2             Variety Store, non-franchise
3             Variety Store, franchise with real estate
0             Vending Machine Route
0             Video Related
4             Uniforms Manufacturing, with real estate
0             Used Car Dealership / Lots
2             Water / Damage Repair
2             Water Purification
1             Web Hosting
2             Well Drilling
3.5         Wholesale Distribution, with real estate
2             Wholesale Distribution, without real estate
2             Yogurt Shop