Why Traditional Bank Loans Rarely Replace SBA Financing for Business Buyers

If SBA financing falls through, don’t expect a traditional bank to step in- unless the stars align.

Here’s why:

1. Traditional Banks Want Less Risk, Not More
They’re going to require bigger down payments, stronger financials, and a mountain of collateral. If you’re not bringing serious assets or cash to the table, they’re out.

2. No Government Guarantee Means No Deal
SBA loans are backed by the government. That gives lenders a safety net. Without that guarantee, most banks just aren’t comfortable funding business acquisitions.

3. The Cash Flow Has to Be Rock Solid
Banks want to see the business throwing off enough cash to comfortably cover the loan payments- with stricter underwriting than the SBA.

When Bank Financing Might Actually Work:
• The buyer is exceptionally qualified—think strong credit, lots of liquidity, and relevant experience.
• The business has hard assets like real estate or equipment the bank can lend against.
• The seller’s financing part of the deal and the bank’s risk is minimized.
• The buyer has a strong existing relationship with the bank and can leverage that trust.

Other Options to Consider:
• Ask the seller to finance part of the deal.
• Explore private or alternative lenders—just know the rates are higher.
• Bring in an equity partner or investor to help get the deal done.

Bottom line- don’t count on the bank unless you check all the boxes. Know your options and build your team accordingly.