How to Buy Your Boss's Business With Little Money Down

Short answer: Most employees can't write the check an outside buyer would, and since October 2026 they may not have to. Under the SBA's new rules, a buyer who has worked at the company for at least 24 months can qualify as an Owner Buyout, where the lender may reduce or waive the 10% down payment. When the bank still says no, the reliable alternative is the owner carrying the price as a note, refinanced with an SBA loan once it has been paid on time for 36 months. Either way, the business's own cash flow has to carry the debt.

Why the bank said no, and why that may have changed

Employees who call an SBA lender are often told they don't have enough cash for the down payment. Under the new rules, that may not be the final answer. The SBA's current rules, SOP 50 10 8.1, sort every purchase into one of four categories. The category sets the down payment. A buyer from outside the company is an Initial Acquisition: 10% down, no exceptions. A sale to existing owners, or to employees who have worked at the company for the past 24 months, is an Owner Buyout. (A full summary is in the new SBA rules.)

The Owner Buyout rules, as lenders are reading them:

• Down payment: starts at 10% of the price. The lender may reduce or eliminate it if the business has enough cash and working capital to run after closing. Its net worth also can't have been negative at the last fiscal year end.
• If it goes to zero: permanent working capital can't be included in that loan or another 7(a) term loan within 90 days. Working capital has to come from existing cash or a line of credit.
• Coverage: 1.25x debt service coverage on last year's or a two-year average of historical earnings. Projections can't be used to qualify.
• Valuation: a third-party business valuation is required when the price includes goodwill and is $350k or more. Total debt, including any owner note not on full standby, can't exceed it.
• Quality of earnings: not required for Owner Buyouts, unlike outside purchases of $3M or more.
• Guarantees: you personally guarantee the loan. If you buy only part of the company, at least one original owner must stay as an owner and guarantee it too.

Reducing the down payment is the lender's credit decision, not an entitlement. A business with thin cash at closing, or one that needs its cash to get through a slow season, may still be asked for the full 10%. Not every lender has adjusted to the new category yet, so if the first bank says no, ask a second.

When the bank can't get there yet: the owner note

The structure we use most often:

• The owner carries most or all of the price as a note at a fixed rate.
• Payments are stretched well past the usual five-year seller note, sometimes 15 to 20 years, so the business can carry them.
• The note balloons in year four or five, and the plan is to refinance it with an SBA loan before then.
• The owner gets protections that don't let them run the business: regular financial reporting, a veto on new debt, and your personal guarantee.

The SBA refinance has its own conditions. The note must have been in place and current, not on standby, for at least 36 months. The new loan must also cut the monthly payment by at least 10%. So pay the note on schedule from day one, and make sure the refinance will fit at the lender's 1.25x coverage.

The trap is price. If the price is set above what the business can borrow against in year three, the refinance won't cover the balloon and someone has to bring cash. Test the price against the refinance before you agree to it. When the owner's number is too high, one fix is a lower price with a modest payoff premium added to the balloon, so the owner still gets paid well and the number works when the bank looks at it in year three. More on notes in how seller notes work.

Owner notes that count toward the down payment

If the deal needs a down payment, an owner note on full standby (no principal or interest for the life of the SBA loan) can count toward it, but limited sources like standby notes and minority investors can make up no more than half of the required down payment. Many owners won't accept a long full standby, so raise it early. The details are in what counts as your equity injection.

Two things that change the cash at closing

Customer deposits. Many service companies collect deposits or prepaid contracts before the work is done. That cash belongs to the customers' future jobs, not the owner. Define closing cash in the letter of intent as cash less customer deposits, less payables above normal, less a minimum operating balance the business needs.

Existing debt and guarantees. Equipment loans, credit lines and leases often carry the owner's personal guarantee. Either they are paid off at closing or the lenders accept you as the new guarantor. Both change how much cash is left.

Program rules move and lenders read them differently, so confirm the category, down payment and refinance timing with your lender before you commit to a structure. This is the Deal Structure work we do before the letter of intent.