Restaurant SBA Guide

Buying a Restaurant with SBA 7(a)

Complete guide to financing your restaurant acquisition.

By Thomas Hartwell | Updated October 2026

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. On a business purchase, SOP 50 10 8.1 sets a 1.25:1 debt service coverage floor measured on the seller's actual results, so the restaurant's track record has to carry the loan. For step-by-step guidance with real numbers, see FUNDED: Restaurant Owner's Guide.

Written by Thomas Hartwell, author of the FUNDED series of industry-specific SBA lending guides.

How to Structure an SBA 7(a) Restaurant Acquisition

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

Get a professional business valuation

Restaurant acquisitions typically sell at 2-3x SDE. An independent valuation confirms the purchase price is reasonable; SOP 50 10 8.1 requires one when the business price is over $350,000. Any amount you pay above the valuation has to come from equity.
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

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

Apply for SBA 7(a) financing

Bundle purchase price, equipment, inventory, and working capital into one 7(a) loan at 10-15% down. The seller's last full year (or 2-year average) needs to cover the new payments at least 1.25 times. Expect 10-year terms and 9-14 weeks from application to closing.
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: up to 10 years on an acquisition (only a real estate portion can go out to 25 years), reducing monthly payments
Proven cash flow: Actual financials instead of projections (and on a purchase, the SBA requires it: projections can't be used to meet the coverage floor)

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: counts toward your equity only if it is on full standby (no principal or interest payments for the term of the 7(a) loan), and then for no more than half of the required 10%. A seller note with payments counts as debt in the coverage test and toward the valuation cap.

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 (about $102,000 a year)

The coverage test: on a first-time purchase, SOP 50 10 8.1 sets a 1.25:1 debt service coverage floor, measured on the seller's last full fiscal year or the average of the last two. Projections can't be used to meet it. For Tony, that means the pizza shop's historical cash flow available for debt service has to be at least about $127,500 (1.25 x $102,000). If it comes in lower, Tony needs a lower price or more equity to shrink the loan.

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 (any amount above the valuation has to be covered with equity)
Thin historical coverage: The seller's last full year (or 2-year average) doesn't cover the new payments 1.25 times
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 SBA floor is 10% of total project cost, and on a first-time purchase (an Initial Acquisition) it can't be waived. Above that floor, 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. Under SOP 50 10 8.1, an independent business valuation is required when the business price is over $350,000 (or the buyer and seller have a close relationship), and the total debt, including any seller note not on full standby, can't exceed that valuation.

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

It's much harder under SOP 50 10 8.1. On a business purchase, the seller's last full fiscal year or the average of the last two must show at least 1.25:1 debt service coverage, either as reported or with documented adjustments (for example, removing the seller's discretionary expenses). A turnaround plan can't be used to meet that floor. If the documented numbers don't cover the payments, the fix is a lower price or more equity so the loan gets smaller.

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 improve 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.

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