How Much Working Capital to Borrow When You Buy a Business With an SBA Loan

Most buyers spend months on the purchase price and about ten minutes on working capital. The price gets negotiated, re-negotiated, and argued over with the seller. The working capital line in the loan request gets filled in with a round number somebody suggested, or left out because a smaller loan felt safer.

Then the deal closes, the seller's cash goes with the seller, payroll is due Friday, and the first big customer pays on net-45. That's when buyers find out whether they sized it right. An SBA 7(a) loan can typically include working capital alongside the purchase price, and getting that number right is one of the more consequential decisions in an acquisition. FTI Capital is a broker and advisor, not a lender. We help buyers structure acquisition requests, including the working capital, and take them to lenders whose appetite fits the deal.

The 30-second version

Why you start with less cash than you think

In most small-business acquisitions, the deal is structured as cash-free, debt-free. The seller keeps the cash in the operating accounts and pays off the business's debts at closing. What you buy is the operation: the customers, the employees, the equipment, the systems, the name.

That's a reasonable and standard structure, but it means the cushion the seller has been running on goes with them. Receivables may or may not be included, depending on what the purchase agreement says. Inventory usually is. Payables, if the seller is responsible for them, get settled out of the seller's proceeds. Read the asset list in your purchase agreement with this question in mind: on the morning after closing, what cash does the business actually have? For many buyers, the honest answer is whatever they borrowed or brought themselves.

What working capital actually has to cover

Working capital isn't a cushion for emergencies, although it doubles as one. It's the money that funds the normal timing gap in how the business runs. The main pieces:

• The receivables gap. If customers pay in 30, 45, or 60 days and employees are paid every two weeks, the business is financing its customers in between. The longer the terms and the bigger the customer, the bigger that gap.
• Inventory and materials. A distributor, a retailer, or a contractor buying materials ahead of a job has cash tied up before it earns anything.
• Seasonality. Many businesses earn most of their margin in a few months and spend the rest of the year carrying overhead. If you close at the start of the slow season, the gap is wider than the annual numbers suggest.
• Transition costs. New insurance, new bank accounts, payroll and software setups, licenses transferred into your name, a key hire to replace the seller's role, or deposits that vendors may ask a new owner for.
• A real buffer. Something for the month when a large customer pays late or a truck breaks down, so a timing problem doesn't become a missed payment.

How to size the number

There's no single formula, and you should be wary of anyone who gives you one without looking at the business. But a sensible sizing exercise usually runs like this:

1. Map the operating cycle. From the seller's financials, estimate how many days of sales sit in receivables, how many days of costs sit in inventory, and how many days the business takes to pay its own suppliers. The gap between the cash going out and the cash coming in is what has to be funded.
2. Look at the monthly pattern, not just the annual totals. Ask the seller for monthly revenue and expenses for the last couple of years. A business that looks fine annually can run a deep cash deficit for three months every winter.
3. Build a month-by-month cash forecast for your first year, starting from a zero or near-zero bank balance, and include your new loan payment and any seller note payments. The lowest point in that forecast tells you more than any rule of thumb.
4. Add the one-time transition costs on top, since they won't show up in the seller's history.
5. Leave margin. Lenders and experienced buyers both assume the first year will have surprises. A forecast that only works if nothing goes wrong isn't sized right.

Our SBA loan calculator can help you see how different loan amounts change the payment, which is the other side of this decision.

How working capital interacts with the rest of the loan

It's part of the project, so it affects your down payment

On a change-of-ownership deal, the SBA's equity injection requirement is generally calculated on the total project cost, not just the purchase price. Working capital rolled into the loan is part of that total. Adding it doesn't come free: it typically raises the amount of equity you need to bring, alongside the loan itself. (See how much down payment you need to buy a business.)

It has to be serviced like everything else

Every dollar borrowed adds to the payment, and the lender's debt service coverage test applies to the whole loan. If the business's cash flow is already tight against the acquisition debt, adding working capital can push coverage below what a lender will accept. When that happens, the answer is usually a structure question (price, term, or a seller note) rather than simply borrowing less. (See how lenders read cash flow.)

Term loan or line of credit?

Working capital inside the 7(a) is permanent money on a fixed schedule. That's right for the baseline cash the business always needs. For swings that come and go, such as a seasonal build or a big job that bills in arrears, a revolving line of credit alongside the term loan is often the better tool, and some buyers set one up at or soon after closing. (See line of credit vs. SBA term loan.)

Signs you've sized it wrong

Too little

• Your first-year cash forecast dips near zero in any month, even before surprises.
• The business has slow-paying customers or long project cycles, and your request treats it like a cash business.
• You're counting on the seller's receivables to fund payroll, but the purchase agreement doesn't actually transfer them to you.
• You left working capital out to make the down payment smaller. That trades a problem at closing for a bigger one in month three.

Too much

• Cash sits idle in the account while you pay interest on it for years.
• The extra borrowing raises the equity injection and squeezes debt service coverage for no operational reason.
• The lender reads an oversized request as a sign you don't understand the business's cash cycle.

What to ask the seller for

1. Monthly profit and loss statements for at least the last two years, plus year-to-date.
2. An accounts receivable aging report, and how it has looked at different points in the year.
3. An inventory listing and how it's counted and valued at closing.
4. Accounts payable terms with the main suppliers, and whether those terms will carry over to a new owner.
5. A list of any customer deposits, prepayments, or retainers, and who keeps them at closing.
6. The seller's own view of the slowest months and how they've covered them in the past.

Several of these also come up when a lender reviews the seller's financials, so asking early does double duty.

How this works with FTI

1. Consult. A free call to look at the business, the purchase agreement, and your cash position, so the working capital number is grounded in how this business actually runs.
2. Structure & package. We help size the full request, including working capital, the equity injection, and any seller note, and put it together in a form underwriters can work with.
3. Match & close. We take the package to SBA lenders whose appetite fits the deal and manage it through to funding. We've arranged $41.3M+ in SBA 7(a) financing across 28 funded deals in 2025–2026.