How Do You Buy a Business? A Plain-English Walkthrough

The Honest Answer: It Takes Longer Than You Think

Most people who decide to buy a business spend 6–12 months from that moment until the day they actually own one. That timeline surprises first-time buyers. They expect the search to be fast and the closing to be slow. It is usually the opposite.

The search phase takes 3–6 months for most buyers. You will look at 10–20 businesses for every one you buy. Deals fall through in due diligence. Sellers pull listings. Lenders find issues. Offers you did not make get accepted by other buyers. This is normal, and it does not mean anything is wrong with your approach.

Once you sign a Letter of Intent, the remaining timeline becomes predictable: 30–60 days of due diligence overlapping with 30–60 days of SBA underwriting, followed by 2–4 weeks of closing mechanics. Total time from LOI to ownership: roughly 60–90 days for most SBA-financed acquisitions.

The good news is that the process follows a clear sequence. Once you know which phase you are in, the next step is obvious.

Phase 1: Get Your Finances and Criteria Clear

Before you look at a single listing, three questions need clear answers: how much capital can you inject, what industry fits your skills and lifestyle, and where are you willing to work?

Start with your injectable capital. SBA loans require 10–20% equity injection. If you have $75,000 liquid — from savings, a ROBS (Rollover for Business Startups) arrangement using $50,000 or more from a qualifying retirement account, or both — you can buy a business in the $375,000–$750,000 range. ROBS lets you deploy those retirement savings as the SBA equity injection without triggering a taxable distribution, provided the funds go into a C-corp that acquires the business. It is a legitimate path, but it requires a specialized plan administrator.

Credit score comes next. Most SBA lenders want 650 or above on personal credit. If you are below that, spend 3–6 months improving it before searching seriously. Applications below 650 do not die — they take longer and attract less favorable terms.

Industry choice is partly practical and partly lifestyle. A pizza franchise requires nights and weekends. A B2B printing franchise runs 9–5. A gym franchise means early mornings. A cleaning franchise can often be managed remotely after year one. Think about what the actual work day looks like for five to seven years — not just the income potential.

Write your criteria down — price range, geography, industry — before you open a listing site. Without that filter, every listing looks equally interesting and you will waste months.

Phase 2: Get SBA Pre-Qualified

Before you make offers, talk to an SBA-preferred lender. This isn't a commitment - it's a soft pre-qualification that tells you how much you can borrow.

You'll typically provide: - Last 2–3 years of personal tax returns - Personal financial statement (assets and liabilities) - Resume (lenders want to see relevant experience) - Business plan or acquisition summary (sometimes)

The lender will tell you: here's roughly what you can borrow, here's what your payments will look like, and here are any issues we'd want to address before underwriting.

Getting pre-qualified before you make offers makes you a more credible buyer. Sellers - especially through brokers - prefer buyers with financing in place. It also helps you avoid falling in love with a business that your financing can't support.

Phase 3: Find and Evaluate Listings

BizBuySell.com is the largest marketplace for Main Street businesses and the obvious starting point. BusinessBroker.net is second. Both aggregate listings from brokers across the country. Franchise portals — Franchise Gator, Franchise.com — carry franchise resales and new territory opportunities.

Local business brokers are worth cultivating even though they represent sellers, not you. Brokers earn their fee (typically 10–12% of sale price, paid by the seller) by controlling off-market deal flow — businesses that will never appear on BizBuySell because the seller wants confidentiality. Building relationships with 3–5 local brokers in your target market often produces better deal access than hours spent on listing sites.

Direct outreach to business owners generates deals before they are listed. A physical letter expressing interest in acquiring a specific business — targeted to owners who have operated for 15 or more years in a category you want — generates surprising responses. There is less competition because most buyers only look at what is publicly listed.

When you review listings, focus on four things: three years of consistent or growing financial history, a reason for sale that makes sense (retirement, health, relocation — not vague mentions of "new opportunities"), owner involvement that matches your actual availability, and lease runway of at least five years. Declining revenue without explanation, one customer accounting for 30% or more of revenue, and sellers who will not share tax returns are the three clearest signals to keep moving.

Phase 4: Make an Offer (Letter of Intent)

When you find a business you want to buy, you submit a Letter of Intent (LOI). This is a non-binding offer that outlines:

• Purchase price and how it's structured (all cash at close, SBA financed, seller-financed portion)
• Earnest money deposit (typically $5,000–$25,000, held in escrow)
• Due diligence period (typically 30–60 days)
• Exclusivity (seller agrees not to accept other offers during due diligence)
• Closing deadline

LOIs are usually 2–4 pages. You don't need a lawyer for an LOI, but you do need one for the Purchase Agreement. Some buyers use a broker or M&A attorney to draft a stronger LOI - worth considering for deals over $500,000.

Sellers counter-offer. That's normal. The negotiation usually lands on price, deal structure, and seller transition period. Don't walk away from a deal over $10,000 on a $500,000 business - the bigger risks are in due diligence, not the headline price.

Phase 5: Due Diligence - Verify Everything

Once the seller signs your LOI, the clock starts on due diligence. This is your window — typically 30–60 days — to confirm everything they told you. Most deals survive it. The ones that do not usually reveal a problem that was hiding in plain sight.

Financial verification starts with bank statements. Cross-reference them against the P&L line by line for at least 12 months. Then compare the P&L to the tax returns for the same periods. Discrepancies are not automatically a problem — owners run personal expenses through businesses, and that is expected. What matters is that every add-back has a paper trail: receipts, payroll records, a specific tax line. If an add-back cannot be explained to an SBA lender, it will not count toward your loan approval.

On the operational side, tour the business multiple times at different hours. Talk to employees with seller permission — they usually know what the owner will not say. Review supplier contracts for pricing and exclusivity terms. Understand how customers are acquired and whether those relationships transfer with a new owner or stay with the departing seller.

The legal checklist covers three things that regularly reprice or kill deals: lien searches on all business assets (a supplier with a UCC filing can claim equipment you thought you were buying free and clear), lease review (remaining term, renewal options, landlord assignment consent, rent escalation clauses), and any pending litigation or regulatory actions. For franchise acquisitions, add a full FDD review with a franchise attorney — Items 19, 20, and 21 specifically. That review costs $1,500–$3,000 and regularly prevents six-figure mistakes.

Phase 6: SBA Underwriting

While you are doing due diligence, your SBA lender is running their own underwriting. SBA 7(a) loans fund acquisitions up to $5 million, with rates at Prime plus 2.75% and 10-year repayment terms for business-only deals. The lender will order a third-party business valuation ($3,000–$5,000, typically paid by the buyer), background checks, verification of your equity injection source, and, for real estate transactions, an environmental report.

SBA underwriting on a business acquisition takes 30–60 days. Preferred Lender Program (PLP) lenders approve internally — meaningfully faster than non-PLP lenders who must submit to the SBA for sign-off. When choosing a lender, ask directly: "Are you a PLP lender?"

Four issues most often sink SBA approval. First, the DSCR — Debt Service Coverage Ratio — falls below 1.25x. The business must earn at least $1.25 for every $1.00 of annual debt payments; if the add-back analysis does not support that, the loan does not close. Second, the appraised value comes in below the purchase price — the SBA will not lend above appraised value, so you will need to renegotiate or cover the gap. Third, the seller's tax returns do not support the earnings claim. Fourth, credit issues surface during underwriting that were not visible at pre-qualification.

For smaller acquisitions or working capital gaps that the primary loan does not cover, SBA microloans go up to $50,000 through nonprofit intermediary lenders. There is no minimum revenue requirement. They are not designed for a full acquisition price, but they can bridge the capital needs your main SBA loan leaves uncovered.

If your deal gets declined, ask for a specific reason. Some declines are fixable — seller reduces price, buyer adds equity, add-backs get better documentation. Some are not.

Phase 7: Closing

Closing day is anticlimactic - mostly signing documents. But the steps leading up to it matter:

1–2 weeks before close: Final walkthrough of the business. Confirm inventory levels, equipment condition, and that nothing has changed since you signed the LOI.

At close: You'll sign the purchase agreement, SBA promissory note, collateral agreements, UCC filings, and (for franchises) the franchise agreement. Funds are wired, ownership transfers.

Post-close: Most sellers stay for a transition period - 30–90 days depending on the deal. Get specific deliverables in writing: "Seller will introduce buyer to all accounts over $10,000 within 30 days of closing." Vague transition agreements lead to disputes.

You're now a business owner. The real work starts here.

The One Thing Most Buyers Skip: Location Scoring

For any business with a physical location - franchise or independent - the address is a core asset. Yet most buyers never independently validate it.

The seller will tell you foot traffic is great. The franchisor's site approval team will sign off on the location. But neither of them is accountable for your revenue after closing.

FundBizPro scores any commercial address on a 1–10 scale in about 60 seconds - analyzing trade area demographics, competitive density, transit access, and daytime population. A 7+ is a viable site. A 5 or below warrants hard questions before you sign.

Run the address before you sign the LOI. Run it again before you close. It's one data point among many - but it's one most buyers skip, and it matters.

Frequently Asked Questions