SBA Loans to Buy an E-Commerce Business
Most of an online business’s value is intangible: its brand, its customers, its sales history and its relationships with suppliers and sales channels. There is usually little real estate or equipment to pledge. That makes many conventional lenders cautious, and it is one reason buyers often consider SBA loans for e-commerce businesses when acquiring an established online store.
This guide explains how SBA 7(a) financing is commonly considered for e-commerce acquisitions, what lenders look for and how to prepare. Program rules change from time to time and lenders may apply stricter standards, and not every online business will qualify, so every transaction should be confirmed with an experienced SBA lender.
How SBA Lending Works
SBA-backed loans are made by participating lenders and partially guaranteed by the U.S. Small Business Administration. The guarantee reduces the lender’s risk and can make it possible to finance goodwill with longer repayment terms than many conventional business loans. Borrowers must meet the lender’s credit standards and the SBA’s eligibility requirements, including size standards, use-of-proceeds rules and requirements related to ownership and guarantees.
SBA 7(a) for Online Business Acquisitions
The 7(a) program is commonly considered for:
- Acquiring an established, operating e-commerce business, including goodwill
- Inventory and working capital needed at and after closing
- Refinancing eligible existing business debt
Learn more about SBA 7(a) business and real estate loans.
What SBA Lenders Look At in an Online Business
- Verified earnings: several years of tax returns and financial statements that reconcile with platform reports and bank deposits
- Cash flow coverage: whether normalized earnings support the proposed debt after all advertising, fees, fulfillment and returns
- Channel concentration: how much the business depends on one marketplace or advertising channel
- Transferability: whether the accounts, domains and intellectual property the business depends on can be transferred or re-established, which depends on platform terms and agreements
- Buyer experience: relevant e-commerce, retail, marketing or management background
- Transition plan: how long the seller will help and how knowledge will be transferred
- Equity and liquidity: the buyer’s cash injection and reserves for inventory
- Guarantees: owners meeting program thresholds are generally required to personally guarantee the loan
Business Location and Operations
SBA eligibility includes requirements related to where a business is located and operates. Buyers of online businesses should confirm early with their lender how those requirements apply to the specific business, its suppliers and its operations.
Equity Injection and Seller Financing
SBA-financed acquisitions require the buyer to contribute equity, and seller financing can sometimes play a role under current program rules. Our article on buying a business with 5% down under the SBA seller-note rules explains how seller notes are treated. Earnouts and other contingent payments raise additional questions under SBA rules, so confirm any proposed structure with your lender before agreeing to it.
Preparing an SBA Request
A complete request generally includes the purchase agreement, several years of financial records, channel-level sales and advertising reports, supplier information, the transition plan, personal financial statements, resumes and projections. Our guide to e-commerce loan requirements covers the full package, and our e-commerce due diligence checklist helps organize what lenders will review. To estimate payments, try our SBA loan calculator. Actual terms depend on the lender, the borrower and the transaction.
Common Mistakes
- Agreeing on a price before confirming the business’s cash flow supports SBA debt
- Relying on platform dashboards that do not reconcile with tax returns
- Assuming every account will transfer to the buyer
- Underestimating inventory and working capital needs
- Agreeing to an earnout structure without checking how the lender will treat it
Is SBA Financing Right for Your Purchase?
SBA financing is not available for every online business, and some deals are better suited to other structures. For many buyers of established e-commerce businesses with verifiable earnings, though, an SBA-backed loan is worth evaluating.
US Professional Funding helps buyers evaluate SBA and conventional financing for acquisitions of established online businesses. Visit our e-commerce business financing page to learn more.
