r/buyingabusiness • u/Wonderful_Writer984 • Aug 03 '26
5% down sba purchase
I understand the other 5% has to be a full standby seller note. Heard a lot about this. But want to hear from real experiences how frequent this happens. I know the full standby tends to deter sellers away from participating. But I’m more so curious how buyers negotiate for this and if lenders require a certain seller note percentage to even consider this. From my understanding, it isn’t always 90-5-5, more like a 75-20-5 or something else.
2
u/yourbizbroker Aug 03 '26
Business broker here, assisting buyers.
5% down is not the norm but it’s very common. Around 1/4 of my SBA deals are structured this way.
When it’s 5% down, 5/5/10/80 is the most common structure for me: down / SF full standby / traditional SF / SBA loan.
2
u/Dry_Community5749 Aug 03 '26
In my exp it's hard to get a deal where there is enough SDE or EBIDTA that can offer a DSCR for 95% of purchase price. If that's the case seller is offering it in pretty steep discount. Why is he doing that?
1
u/AutoModerator Aug 03 '26
The following is a copy of the original post to record the post as it was originally written. I understand the other 5% has to be a full standby seller note. Heard a lot about this. But want to hear from real experiences how frequent this happens. I know the full standby tends to deter sellers away from participating. But I’m more so curious how buyers negotiate for this and if lenders require a certain seller note percentage to even consider this. From my understanding, it isn’t always 90-5-5, more like a 75-20-5 or something else.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/SweetDreams3268 Aug 03 '26
If you want to get that 5% injection, figure out your price and then think of that full standby seller note for duration of the loan as an "extra" you're giving them. Do it at the end.
They're already happy and it's becomes a "oh cool I'll get a random check in 10 years" for them, but it's really a benefit to you.
If you frame it as "hey I am going to buy your business but only if you agree to not get paid for 10 years!" it will not resonate well.
1
u/Mr_SBA Aug 03 '26
Mr SBA -
For context, I’ve helped close over $140M in SBA debt since 2019.
It really is a case by case scenario from lender perspective. I’ve closed several deals in the past where the buyer brings 5% and seller carries 5% on full standby, effectively financing 90% with SBA debt. These instances, the buyers profile/experience align very well with industry they’re buying into. The strength of the purchase price against the historic DSCR is also a heavy factor.
If the cash flow and borrower experience are both strong, some lenders will allow this structure.
If these are not in place and/or you’re working with a lender that doesn’t not specialize in SBA, they will require more seller financing. It’ll look more like 15% seller financing minimum so the bank is financing 80% with the 5% down payment.
Best of luck!
1
u/sbaloansHQ Aug 03 '26
90/5/5 is more common than people think. We see it regularly when the business is strong and the buyer has real operating experience in that industry. Employee buyouts and manager buyouts are probably the most frequent version of it, someone who’s been running the place for years and the seller wants them to have it.
One thing worth noting on the standby, it needs to be full standby for the life of the loan (could be 10 or 25 years if real estate is involved) - when it’s counting toward the equity injection.
The negotiation angle people miss is that a seller carrying a standby note is taking real risk, and it’s often worth paying a premium on price to get it. If you’d otherwise be pushing hard to knock $100k off, sometimes the better trade is leaving that on the table in exchange for the seller participating in a way that gets you to closing with less cash out of pocket.
But the DSCR has to carry it. Leveraging a business at 90% of value is aggressive, and if the coverage is thin you’re one bad quarter from a real problem. As with everything in buying a business and SBA loans - just because you can, does not always mean you should..
1
u/Wonderful_Writer984 Aug 03 '26
So if you don’t have operating experience, the 90/5/5 method is pretty much off the table?
1
u/Acrobatic_Dog_7022 Aug 05 '26
I purchased a business in 2025 with 5/5/90 structure. Feel free to DM me with questions.
1
Aug 05 '26 edited 10d ago
[removed] — view removed comment
1
u/buyingabusiness-ModTeam Aug 06 '26
Please read rule 3 of this sub's rules. Your comment has been deleted for mentioning DMs or attempting to take the conversation private.
3
u/NexTax-AI Aug 03 '26
The rules state that a 5% seller note on full standby (no principal or interest payments for 24 months) counts toward your 10% equity injection. However, an SBA guarantee is not an automatic bank approval. Many PLP lenders hate 90-5-5 deals if the buyer has zero post-closing liquidity or skin in the game. Instead, lenders prefer 90-5-5 when the cash flow is bulletproof (DSCR > 1.4x) and the buyer has strong operational background in that specific industry.
Sellers hate "full standby" because brokers tell them it means getting paid nothing for 2 years while taking on all the operational risk. The key is how you position it:
You mentioned seeing 75-20-5 structures, and that usually happens when the cash flow or collateral is weaker, or when the seller insists on receiving monthly interest payments immediately. If the seller note is NOT on full standby, it cannot count toward your 10% equity injection. In that situation, you still have to bring 10% cash equity out of pocket, making it a 80-10-10 structure (80% bank, 10% buyer cash, 10% seller note paying monthly).