SBA 7(a) Loan Underwriting: What Buyers and Sellers Need to Know

Recently, we examined the fundamentals of SBA 7(a) loans, which are the preferred financing option for individuals looking to acquire a small business. Additionally, we covered the advantages, structure, and implications for sellers when a buyer utilizes SBA financing.

But if you’re diving deeper into the process—whether as a buyer, seller, or broker—you’ll want to understand what happens behind the scenes once an SBA loan application is submitted.

Welcome to the world of SBA underwriting.

This is the make-or-break phase of the deal. It’s where the bank (and the SBA) decide whether your loan request is solid—or shaky. It’s also where timelines get real, documentation gets serious, and a good advisor can make all the difference.

So buckle up. Here’s your complete guide to the SBA 7(a) loan underwriting process, packed with practical insight for sellers and buyers alike.

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What Is SBA Underwriting?

Underwriting is the lender’s deep-dive process to determine whether a loan is safe to approve. For SBA 7(a) loans, this means analyzing:

• The business being acquired

• The buyer’s qualifications

• The deal structure

• The financial projections

• The risk to the lender and SBA

Think of it like a financial background check, credit review, and business feasibility study—all rolled into one.

While the SBA backs part of the loan (typically 75%), the lender still carries the risk, so they’re not rubber-stamping anything. They want to ensure this business can service its debt and the buyer can run it successfully.

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How Long Does SBA Underwriting Take?

While timelines can vary by lender, underwriting generally takes:

• 1–2 weeks for pre-underwriting or lender pre-approval

• 2–4 weeks for full underwriting once documents are submitted

• 60–90 days total from LOI to closing, depending on deal complexity

The speed of underwriting depends on how organized the buyer and seller are, how responsive the lender is, and whether any red flags pop up.

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Step-by-Step: SBA 7(a) Loan Underwriting Process

Let’s break it down from start to finish.

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Pre-qualification confirms the buyer, business, and deal might meet SBA standards—before full underwriting begins.

1. Pre-Qualification (Before Underwriting Begins)

Before full underwriting starts, the lender typically does a pre-qual to confirm that the deal might be SBA-eligible. This involves:

• A basic look at the business’s financials (e.g., tax returns, P&Ls)

• The buyer’s credit score and resume

• A rough deal structure

If it passes the sniff test, the lender issues a Letter of Intent (LOI) or Term Sheet—and then the real work begins.

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2. Submission of Full SBA Loan Package

Underwriting officially kicks off when the buyer submits a complete loan application package, which usually includes:

Buyer Requirements:

• Personal financial statement

• Personal tax returns (3 years)

• Resume or bio showing relevant business experience

• Business plan with industry analysis

• 2–3 years of personal bank statements

• Proof of equity injection (down payment funds)

Seller/Business Requirements:

• Business tax returns (3 years)

• Year-to-date P&L and balance sheet

• Interim financials

• Business debt schedule

• Aging reports (accounts receivable/payable)

• Copy of lease

• Asset list with fair market values

• Business valuation (sometimes required)

• Franchise agreement (if applicable)

Having a well-prepared, organized loan package speeds up underwriting and reduces the chance of delays or denials.

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3. Business Cash Flow Analysis

Here’s where the underwriting rubber meets the road.

The lender’s credit analyst will assess the business’s Debt Service Coverage Ratio (DSCR)—a key metric determining whether the company can repay the SBA loan.

SBA Minimum DSCR:

1.15x — meaning the business should generate at least $1.15 in cash flow for every $1.00 in debt payments.

They’ll evaluate:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

• Seller add-backs (like owner salary, personal expenses, one-time costs)

• Normalized cash flow

• Pro forma debt payments under the new loan

The loan is in jeopardy if the DSCR doesn’t pencil out—or the add-backs are questionable.

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Strong credit, relevant experience, and sufficient equity are critical for buyer approval.

4. Buyer Evaluation

Lenders don’t just assess the business—they vet the buyer just as thoroughly.

They want to see:

• Strong personal credit (680+ score is ideal)

• Industry or management experience (not necessarily exact, but related)

• Sufficient equity injection (typically 10–20% of the deal price)

• No history of bankruptcy, foreclosure, or criminal convictions

The SBA wants to know if the person buying the business can run it and repay the loan—especially since the buyer is often the new CEO.

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5. Franchise, Licensing, or Lease Review

If the business operates under a franchise agreement, the lender must confirm that the franchise is SBA-approved.

They’ll also review the real estate lease, looking for:

• A remaining lease term that matches or exceeds the loan term

• Assignability clauses (so the lease transfers with the sale)

• No restrictive clauses (e.g., limits on future ownership)

If the business requires licenses or permits (like liquor, healthcare, or construction), the lender will ensure the buyer can obtain them before closing.

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6. Business Valuation (Third-Party Appraisal)

For deals over $250,000—o if there’s a change of ownership—the SBA typically requires a third-party valuation. The lender must order this, and an SBA-approved valuation firm must conduct it.

The valuation must support the purchase price. If it comes in low, the deal may need to be renegotiated—or the buyer may need to put in more equity.

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7. Legal Review & Background Checks

Lenders conduct:

• Background checks on all parties

• Legal review of purchase agreements, entity documents, leases, and more

• Checks for liens, lawsuits, UCC filings, and legal judgments

The SBA wants to know there are no skeletons in the closet—on either side of the table.

8. Loan Committee Approval

Once all due diligence is complete and underwriting signs off, the deal heads to the lender’s loan committee for final approval.

This internal group reviews the full loan package and gives the green light—or asks for changes.

If approved, the lender issues a loan commitment letter—the final “yes” before closing documentation begins.

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Once underwriting is complete, the loan committee gives final approval—and the deal moves toward closing.

9. SBA Authorization & Closing Docs

The lender prepares an SBA Authorization, a formal agreement that outlines all loan terms and conditions and must be signed by both parties.

Then comes:

• Closing checklist

• Escrow coordination

• Final signatures

• Disbursement of funds

Boom. The deal is done.

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Common Underwriting Pitfalls (and How to Avoid Them)

Underwriting is detailed—and it’s easy for things to go sideways. Here are some common issues that delay or kill deals:

❌ Sloppy Financials

Inconsistent or incomplete records from the seller can tank cash flow analysis. Clean books = faster underwriting.

❌ Buyer Lacks Experience

Lenders get nervous if the buyer has zero industry background and no plan to hire experienced help.

❌ Unrealistic Projections

Underwriters will push back if the business plan looks like a fantasy novel. Projections need to be grounded in reality.

❌ Inflated Add-Backs

Are you trying to add back your cousin’s car lease as an “owner benefit”? It's not going to fly. Be honest and conservative.

❌ Surprises During Diligence

Lawsuits, tax liens, or a falling-out with the landlord can spook lenders late in the game.

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How Sellers Can Help the SBA Process

Sellers, even though the buyer is applying for the loan, your cooperation can make—or break—the deal.

Here’s how you can help:

• Be organized and responsive

Have your financials, lease, and documentation ready to go.

• Be transparent

Disclose issues early—honesty builds lender confidence.

• Support the buyer

Help them develop their business plan, connect with key vendors, and navigate transition planning.

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Final Thoughts: Be Prepared, Not Surprised

The SBA underwriting process is thorough for a reason. Lenders want to fund good deals—but they’re not in the business of gambling.

For buyers, that means having your financial house in order and working with lenders specializing in SBA acquisition loans.

For sellers, it means being organized, transparent, and realistic about timelines.

At HartmannRhodes, we help connect exceptional businesses with qualified, well-prepared buyers.

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Thinking About Selling Your Business?

Let’s talk about whether your business is a good fit for SBA buyers—and how to prepare for the underwriting process beforehand.

You built it. Now, it’s time to transition it—on your terms, with expert guidance and a clear path to closing.

📞 Schedule a free, confidential consultation.

Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.

Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).

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Morristown, NJ 07960

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Partner with HartmannRhodes, expert business brokers and M&A advisors, to strategically navigate your business sale—maximizing value and ensuring a smooth transition. Reach out for tailored business sale strategies. Contact us today!

SBA 7(a) Loan Underwriting: What Buyers and Sellers Need to Know