How Long Does It Take to Close on a Small Business Acquisition?
Buying a small business with an SBA loan takes time. It may take many months to find the right business to buy. For some buyers, it takes years. But with persistence, you’ll eventually reach the point where you have a signed Letter of Intent in hand.
You are now closer to the finish than the start. But the closing is not automatic. There is still real work to do: diligence, negotiation, and closing logistics.
How long should you expect that process to take?
Plan on about 90 days from LOI to closing. But don’t be surprised if the deal takes closer to 120 days, especially if SBA-financed, diligence raises issues, or the transaction documents take longer to negotiate than expected.
The typical deal takes about three months to close from LOI.
A typical small business acquisition breaks down into three overlapping workstreams:
Conducting diligence and deal structuring
Negotiating the transaction documents
Signing and closing.
These workstreams are not perfectly sequential. Financing, diligence, and document negotiation often move in parallel.
1. Conducting diligence and deal structuring (Days 0-30)
Start financial diligence immediately after signing the LOI.
Financial issues are the most likely thing to kill a small business deal. Work with a suitable professional to analyze the company’s financial statements, tax returns, add-backs, working capital, debt, and cash flow. If the company’s true financial condition is materially different from what was represented, you may need to renegotiate the purchase price or walk away.
When it looks like you’ll pass financial diligence, begin legal diligence.
In many small business deals, legal diligence is targeted rather than exhaustive. Many small businesses are run informally, with incomplete records and imperfect documentation. But that does not mean legal diligence is unimportant.
Some diligence issues can be addressed in the purchase agreement through representations, indemnities, or other protective provisions. Other issues must be resolved before closing. For example, if key contracts cannot be assigned to you as the new owner without third-party consent, you may need to obtain that consent or restructure the deal.
Deal structure should also be addressed early.
The typical small business acquisition does not present complicated structuring problems. But complications sometimes arise when the buyer is purchasing equity rather than assets or when licenses or permits are not freely transferable. These issues should be surfaced early.
Financing should be moving forward at the same time. In an SBA-financed deal, the lender is not a background participant. The lender’s underwriting process is usually the pacing item for closing.
A term sheet is the first step toward securing financing from a lender. Different lenders may offer different terms, timelines, and levels of experience with business acquisitions. Aim to compare options before committing, or work with a loan broker who understands SBA acquisition financing.
Once you have signed a term sheet, push the underwriting process forward. Respond quickly to lender requests. Keep diligence materials organized. The lender cannot approve and close the loan until it has the information it needs.
2. Negotiating the transaction documents (Days 30-60)
During this phase, the parties should be preparing and negotiating the purchase agreement and the other transaction documents.
The exact documents will depend on the deal. A typical asset purchase involves an asset purchase agreement, a bill of sale, and an assignment and assumption agreement.
If the seller is providing part of the financing, the parties will also need to agree on a seller note. There may also be a transition services agreement describing the work the seller will perform after closing to help transition the business to your leadership.
The purchase agreement is where diligence findings become legal protections. It should address the seller’s representations, indemnification rights, and the consequences if something important changes before closing.
As you approach a signed purchase agreement, you should also be approaching a commitment letter from your lender. The commitment letter generally means the lender has completed its underwriting review and is prepared to finance the deal if certain closing conditions and checklist items are satisfied.
3. Signing and closing (Days 60-90)
In a typical SBA-financed acquisition, closing does not occur at the same time the purchase agreement is signed. Signing the purchase agreement does not mean you own the business. Instead, the parties sign the agreement first, then work through the remaining closing conditions.
This sign-then-close structure may feel inefficient, but it is common in SBA deals. The lender needs time to review the final purchase agreement, approve the transaction documents, confirm that all loan conditions have been satisfied, and complete its own closing process.
The structure also has a benefit. Once the purchase agreement is signed, the parties can focus more directly on transition planning without the same pressure of negotiating the core deal terms.
The seller may have run the company for decades. You are going to lose that institutional knowledge soon. Use the period between signing and closing to understand customers, employees, vendors, recurring problems, and the practical rhythms of the business.
Obtain the lender’s closing checklist as early as possible and track each item carefully. When the lender is nearing the end of its closing process, it will provide a closing date and appoint a closing agent.
The closing agent will prepare a closing statement showing the flow of funds. On the closing date, the final legal and loan documents will be signed.
When the funds are disbursed, you have closed.
Many deals take four or more months to close.
Three months is a reasonable planning assumption. But many deals take longer.
Transaction documents often require several rounds of review. Even when both sides are committed to moving quickly, there are real consequences to getting the documents wrong. Prudence rarely favors rushing through the legal terms just to hit an arbitrary closing date.
Delay can also come from the seller’s side. The seller may be slow to produce diligence materials, seller’s counsel may need more time to review documents, a landlord or customer may delay consent, or the seller may need additional time to prepare for transition.
To be clear, delay can come from the buyer’s side too. Financial diligence may take longer than expected. The lender may request additional information. Insurance, entity formation, licenses, leases, and closing deliverables may take time to complete.
A delayed closing is frustrating. But a delayed closing is usually better than a rushed closing. The goal is not merely to close. The goal is to close the right deal, on terms you understand, with the key risks identified and allocated.
What buyers can do to keep the deal moving forward.
Start diligence immediately after the LOI is signed.
Engage the lender early and respond quickly to underwriting requests.
Identify third-party consent issues as early as possible, especially landlord consents.
Four months can feel long when you are eager to own the business. But four months spent getting the deal right is better than four years living with the consequences of a deal that should not have closed.