Written by The Pragmatic CFO. 15+ years running restaurant P&Ls.
This article is part of The 4-Wall Series.
An SBA 7(a) loan is how most people buy an existing restaurant. The lender cares about two numbers: how much cash you put in and whether the restaurant’s cash flow covers the payments. Here’s the math on both, using the rules in effect for loans approved from October 1, 2026.
The two numbers that decide the loan
- Equity injection: for a change of ownership, you put in at least 10% of the total project cost.
- Debt service coverage (DSCR): the cash flow left to pay debt, divided by the yearly loan payments. The SBA floor is 1.25x for an acquisition and 1.15x for an expansion. Many lenders want 1.25x to 1.35x.
Coverage is figured on the restaurant’s actual history, adjusted for real add-backs. Projections don’t count. If you need to know what counts as an add-back, see buying an existing restaurant.
Where the 10% can come from
- Your own cash, from savings or a sale.
- A seller note, but only if the seller agrees to take no payments for the full loan term. That’s called full standby.
- A standby seller note plus money from minority partners can cover no more than half of the 10%. The other half has to be yours or your majority owners’.
A worked example
You’re buying a restaurant for $482,500. You need $50,000 of working capital and $17,500 for closing costs.
| Line | Amount |
|---|---|
| Total project | $550,000 |
| Equity injection, 10% | $55,000 |
| Of that, standby seller note (half at most) | up to $27,500 |
| SBA loan | $495,000 |
| Payment at 10% over 10 years | $6,541 a month, $78,498 a year |
The restaurant’s adjusted cash flow (SDE) is $193,000. The lender takes out a fair salary for whoever runs it, say $70,000. That leaves $123,000 to pay debt.
| Test | Result |
|---|---|
| Coverage, $123,000 divided by $78,498 | 1.57x |
| SBA floor for an acquisition | 1.25x |
| Biggest loan that still clears 1.25x | about $620,500 |
At 1.57x this deal clears with room. If the coverage came in under 1.25x, you’d need a lower price, more cash down or a longer seller note, not a better pitch.
Rules that catch buyers
- Size: the 7(a) limit is $5 million. At $3 million and up the lender needs a quality of earnings report.
- Term: buying a business is usually a 10-year loan. Real estate in the deal can stretch longer.
- Rate: the rate floats off prime. I used 10% for the example. Get the real number from your lender.
- Working capital: borrow it now. Going back for more six months after closing is much harder.
SBA rules change every year or two. Check the current version with your lender before you sign a letter of intent.
Related: the 13-week cash flow forecast, the break-even calculator and when to refinance restaurant debt.
Free: The Restaurant Financial Health Checklist. 30 monthly checks across sales mix, prime cost, 4-wall EBITDA, cash and operations, with the target ranges I use. Written by a former chain CFO. Instant PDF.
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More on this: what restaurants sell for in 2026.
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How much down payment do I need for an SBA restaurant loan?
At least 10% of the total project cost for a change of ownership. Up to half of that can be a seller note on full standby.
What DSCR does the SBA require?
1.25x for an acquisition and 1.15x for an expansion, based on historical cash flow. Many lenders want 1.25x to 1.35x.
Can I use projections to qualify?
No. Lenders use the restaurant’s actual history, with documented add-backs.
How long is an SBA loan to buy a restaurant?
Usually 10 years for the business. Real estate can run longer.