IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family businesses. The following blog article has been provided by Billy Huntley of Washington Trust Bank (https://www.watrust.com/):
SBA 7(a) and 504 Loan Limits Have Increased: What Business Buyers and Sellers Should Know
Financing is often one of the most important factors in a successful business acquisition. Even when a buyer and seller agree on price, terms, and transition expectations, the ability to secure the right financing structure can determine whether a transaction moves forward efficiently or encounters avoidable delays.
For business buyers, sellers, brokers, and advisors, a recent change from the U.S. Small Business Administration is worth understanding. Effective in July, qualified borrowers may now combine SBA 7(a) and SBA 504 financing up to a cumulative $10 million. This represents a meaningful increase from the prior combined limit of $5 million and may create new flexibility in transactions involving both the purchase of a business and owner-occupied commercial real estate.
Why This Change Matters
SBA-backed financing has long played an important role in business acquisition activity, particularly for qualified buyers purchasing privately held companies. The 7(a) program is commonly used for business acquisitions, working capital, equipment, and other eligible business purposes, while the 504 program is frequently used for owner-occupied commercial real estate and long-term fixed assets.
Before this update, a buyer or business owner seeking more than $5 million across a business acquisition loan and a related real estate loan often needed to evaluate alternative structures. Those structures might include additional buyer equity, greater seller participation, a conventional bank component, or a pari passu loan arrangement. The expanded cumulative limit may give qualified borrowers more room to align the financing with the actual needs of the transaction.
How This Could Apply in a Business Purchase
Consider a buyer who wants to purchase both an operating company and the building the company occupies. In the past, loan-limit constraints may have required the buyer to lease the real estate, bring in more equity, ask the seller to carry a larger note, or separate the timing of the business and real estate transactions. With the higher cumulative SBA limit, a qualified buyer may have more flexibility to consider both parts of the transaction together.
The change may also benefit a business owner who previously acquired a company with 7(a) financing and leased the related real estate because of prior SBA loan-limit concerns. Under the updated cumulative limit, that borrower may be able to revisit the purchase of the property through the 504 program, provided the transaction meets SBA program requirements and is properly structured.
Sequencing and Structure Still Matter
While the increased limit creates new possibilities, it does not eliminate the need for careful planning. Each SBA program still has its own eligibility rules, underwriting standards, collateral considerations, occupancy requirements, and eligible uses of proceeds. In many transactions, sequencing may be important. Borrowers may need to access the 7(a) program first and the 504 program second to potentially maximize the available cumulative SBA financing.
This is where assumptions can become costly. A buyer may believe the higher limit automatically solves a financing gap, but the final structure will depend on the business purchase price, real estate value, working capital needs, equipment requirements, seller note terms, available collateral, borrower equity, and projected cash flow. A transaction involving goodwill, inventory, tenant improvements, equipment, real estate, and post-closing working capital can require a thoughtful allocation of loan proceeds across the available financing options.
Why Early SBA Guidance Is Valuable
Business buyers and sellers benefit when financing questions are addressed early in the process. A qualified SBA banker can help evaluate whether a proposed structure is realistic before the parties spend significant time and money on appraisals, legal documents, purchase agreements, or negotiations that may later need to be revised. Early guidance can also help identify potential issues involving buyer eligibility, affiliate exposure, equity injection, seller financing, debt service coverage, collateral, and timing.
For sellers, this guidance can be equally important. A strong buyer with a thoughtful financing path may improve certainty of closing, reduce late-stage surprises, and help keep the transaction moving toward a successful outcome. For buyers, understanding available financing options early can help shape a more competitive offer and set realistic expectations for equity, timing, and documentation.
A Practical Next Step
The SBA website remains a useful resource for general information about the 7(a) and 504 loan programs. However, the way those rules apply in a specific transaction will depend on the facts, timing, borrower profile, use of proceeds, collateral, cash flow, and occupancy requirements. If you are considering the purchase or sale of a privately held business, an owner-occupied real estate acquisition, or a combination of both, involving an experienced SBA banker early can help clarify options and support a financing strategy designed around the transaction’s goals.
Billy Huntley is a Commercial Relationship Manager at Washington Trust Bank with approximately 25 years of banking experience helping small businesses meet their financing needs. If you have questions about this article or would like to obtain information related to business financing Mr. Huntley would welcome communication at (360) 403-5755 or [email protected].
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.