SBA Loans for Technology Companies: Financing an Existing Business Purchase
Buyers of established IT services firms, managed services providers and small software businesses frequently look at SBA-backed financing because it may allow longer repayment terms than some conventional options. SBA loans for technology companies are not automatic, however. Eligibility depends on the business, the buyer, the structure of the transaction and how the loan proceeds will be used, and every loan is subject to lender approval.
This article is general information for buyers of existing, operating, profitable technology companies. It does not address starting a new company, venture funding or financing product development. SBA program rules change over time, and lenders apply their own credit standards. Nothing here is a commitment to lend or legal, tax or financial advice.
How SBA Financing May Be Used
The SBA 7(a) program may be used to finance the acquisition of an existing business, including goodwill, and in some cases working capital. If the purchase includes owner-occupied real estate, that may be financed as well, subject to program rules. Learn more about SBA 7(a) loans.
Eligibility Questions Lenders Will Ask
- Whether the business and its owners meet SBA size and eligibility standards
- Whether the proceeds will be used for an eligible purpose
- How the transaction is structured, including any seller financing
- Whether the seller will remain involved after closing and in what role
- Whether the buyer has relevant technical, management or industry experience
- Whether the business has a history of profitable operations
Cash-Flow Lending for an Intangible-Heavy Business
Technology companies frequently have limited hard assets. Much of what a buyer pays for may be client relationships, contracts, code and the team. Lenders typically focus on whether documented cash flow can support the new debt after operating costs and a reasonable salary for the owner, and they weigh collateral shortfalls alongside cash flow. Recurring revenue records, client concentration and owner dependence can all influence the review. Our guide to technology company valuation explains how earnings are evaluated.
Working Capital for the Transition
Buyers should plan for the cash needed after closing, such as payroll, vendor payments and any costs of moving accounts, tools or licenses into the new owner’s name. Lenders may consider working capital as part of the request, depending on program rules and the transaction.
Equity and Seller Financing
Lenders generally expect the buyer to contribute equity. Seller financing may be part of the structure, subject to program rules about how the seller note is treated. Some lenders and programs limit earnouts. See our article on technology company seller financing.
Documents to Prepare
- Business tax returns and financial statements from the seller
- Interim financials and revenue by client and service line
- Sample client agreements and a summary of recurring billing
- The purchase agreement or letter of intent
- The buyer’s personal financial statement, tax returns and resume
- A business plan with projections and a transition plan for clients and staff
Our article on technology company loan requirements covers the documentation lenders frequently request. To estimate payments on a proposed loan, try our SBA loan calculator.
Comparing SBA and Conventional Options
Depending on the transaction, conventional financing may also be available. Terms, collateral requirements and eligibility differ, and the right fit depends on the buyer, the company and the lender.
US Professional Funding helps buyers evaluate SBA and other financing options to acquire existing, operating technology companies. Learn more about our technology acquisition financing.
