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Restaurant SBA Guide

Buying a Restaurant with SBA 7(a)

Complete guide to financing your restaurant acquisition.

By Thomas Hartwell | Updated

SBA 7(a) loans are ideal for restaurant acquisitions--financing the full purchase price including goodwill, equipment, inventory, and working capital in one loan. Expect 10-15% down and 10-year terms, with the advantage of actual financials over projections. For step-by-step guidance with real numbers, see FUNDED: Restaurant Owner's Guide.

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Written by Thomas Hartwell, SBA lending specialist and author of the FUNDED series.

How to Structure an SBA 7(a) Restaurant Acquisition

  1. 1

    Evaluate the target restaurant's financials

    Request 3 years of tax returns, monthly P&L statements, and POS data. Verify revenue trends, food and labor cost percentages, and identify any add-backs to calculate true SDE.

  2. 2

    Get a professional business valuation

    Restaurant acquisitions typically sell at 2-3x SDE. An independent valuation confirms the purchase price is reasonable and satisfies SBA lender requirements for deals above $250K.

  3. 3

    Negotiate the LOI as an asset sale

    Most restaurant acquisitions are structured as asset sales (equipment, inventory, goodwill) rather than stock sales. This is cleaner for SBA financing and limits your liability exposure.

  4. 4

    Review the lease for SBA compliance

    Verify 10+ years remaining (including options), assignment language allowing transfer, and rent under 8-10% of revenue. A short or unassignable lease is the #1 restaurant deal-killer.

  5. 5

    Apply for SBA 7(a) financing

    Bundle purchase price, equipment, inventory, and working capital into one 7(a) loan at 10-15% down. Expect 10-year terms and 9-14 weeks from application to closing.

  6. 6

    Get deal structuring guidance

    The FUNDED Restaurant Guide covers acquisition checklists, seller note structures, and real case studies including Tony's pizza shop deal.

Need the full walkthrough with real deal numbers and lender insider tips?

Get FUNDED: The Complete SBA Loan Guide for Restaurant Owners

Why Is SBA 7(a) the Best Option for Restaurant Acquisitions?

SBA 7(a) is often the best financing option for buying an existing restaurant:

  • Finance goodwill: Unlike many lenders, SBA can finance business value beyond tangible assets[1]
  • Lower down payment: 10-15% vs 25-30% for conventional acquisition loans[2]
  • Single loan: Bundle purchase price, equipment, and working capital
  • Longer terms: 10 years on business assets, reducing monthly payments
  • Proven cash flow: Actual financials instead of projections

What Does an SBA Restaurant Acquisition Loan Cover?

An SBA restaurant acquisition loan typically covers:

  • Purchase price: Including goodwill and intangibles
  • Equipment: Existing equipment plus any upgrades
  • Inventory: Opening inventory
  • Working capital: 2-3 months operating expenses
  • Transaction costs: Some closing costs, not the down payment

How Do SBA Lenders Value a Restaurant for Acquisition?

Lenders will scrutinize the purchase price. Common valuation methods:

SDE Multiple

Most common for small restaurants. Seller's Discretionary Earnings (SDE) = Net Income + Owner Salary + Owner Benefits + Non-recurring Expenses.

  • Small restaurants: 1.5x - 2.5x SDE
  • Established restaurants: 2x - 3x SDE
  • Strong brands/locations: 3x - 4x SDE

Asset-Based

Equipment + inventory + lease value. Used as floor valuation.

Cash Flow (EBITDA)

For larger restaurants. Typically 3x - 5x EBITDA.

What Due Diligence Do You Need for a Restaurant Acquisition?

Before committing, verify:

Financial Review

  • 3 years tax returns
  • Monthly P&L statements (2+ years)
  • Sales by category/daypart
  • Food and labor cost trends
  • Accounts payable and receivable

Lease Review

  • Remaining term (need 10+ years for SBA)
  • Renewal options and terms
  • Assignment clause (can you take over?)
  • Personal guarantee requirements
  • CAM charges and escalations

Operational Review

  • Equipment condition and age
  • Health department history
  • Employee roster and wages
  • Vendor contracts and pricing
  • POS system and data

Legal Review

  • Pending litigation
  • Licenses and permits (transferable?)
  • Liquor license status
  • Outstanding liens
  • Franchise agreement (if applicable)

How Should You Structure an SBA Restaurant Acquisition Deal?

Asset Sale vs. Stock Sale

Most restaurant acquisitions are asset sales--you buy the assets (equipment, inventory, goodwill) rather than the legal entity.[3] This is cleaner for SBA financing and limits liability exposure.

Typical Structure

  • SBA loan: 80-90% of total project
  • Your equity: 10-20%
  • Optional seller note: Up to 10-15% (on standby)

Example: Tony's Pizza Acquisition

Purchase price: $800,000 | Working capital: $50,000 | Total project: $850,000

  • SBA 7(a) loan: $722,500 (85%)[4]
  • Tony's equity: $127,500 (15%)
  • Terms: 10 years at Prime + 2.75%
  • Monthly payment: ~$8,500

How Long Does SBA Restaurant Acquisition Financing Take?

Phase Duration
LOI and due diligence 2-4 weeks
Loan application 1 week
Underwriting 3-4 weeks
Appraisal/valuation 2-3 weeks
Closing 1-2 weeks
Total 9-14 weeks

What Are the Most Common Restaurant Acquisition Deal Killers?

  • Lease too short: Need 10+ years remaining (with options)
  • Unassignable lease: Landlord won't approve transfer
  • Cash business: Unreported income can't support the loan
  • Overpriced: Valuation doesn't support purchase price
  • Environmental issues: Contamination from grease traps, tanks

Restaurant Acquisition FAQ

Can I use an SBA loan to buy an existing restaurant?

Yes. SBA 7(a) loans are commonly used for restaurant acquisitions. You can finance the purchase price (including goodwill), equipment, inventory, working capital, and even some transaction costs. Acquisitions often have an advantage over startups because you have actual financials instead of projections.

How much down payment do I need to buy a restaurant?

Expect 10-15% down payment for restaurant acquisitions with an SBA loan. The exact amount depends on your experience, credit profile, and deal structure. Deals with significant goodwill or first-time buyers may require 15-20%.

What's the typical SBA loan amount for a restaurant acquisition?

Restaurant acquisitions typically range from $350,000 to $2 million, though SBA 7(a) can go up to $5 million. The loan amount depends on purchase price, equipment needs, working capital, and your down payment.

How do lenders value a restaurant for SBA financing?

Lenders typically value restaurants based on a multiple of Seller's Discretionary Earnings (SDE)—usually 2x to 3x depending on size, concept, and market. They'll also consider asset value, lease terms, and location. An independent business valuation may be required.

Can I get SBA financing if the restaurant is losing money?

It's difficult but possible if you can demonstrate the business is underperforming due to fixable issues (poor management, marketing, etc.) and you have a credible turnaround plan. You'll likely need more equity, stronger experience, and may need to offer additional collateral.

Related Restaurant Guides

How to Get an SBA Loan for a Restaurant

Complete application guide

Restaurant Cash Flow Requirements

DSCR and qualification

What This Guide Doesn't Cover

This free guide covers the basics. The FUNDED book includes:

  • Tony's complete pizza shop acquisition--purchase price negotiation, SDE analysis, and lender conversations
  • How to identify and negotiate add-backs that increase SDE and improve your loan terms
  • Seller note structuring that satisfies SBA standby requirements
  • The due diligence red flags that experienced buyers catch before signing the LOI
  • Asset allocation strategies that optimize your tax position after closing
Get FUNDED: The Complete SBA Loan Guide for Restaurant Owners

Get the Complete Restaurant Guide

FUNDED: The Restaurant Owner's Guide covers acquisitions, valuations, and deal structuring in detail.

Learn More