Reviewed by Erik Newton, Esq., on November 8, 2026.
Key takeaways
- The SBA’s rulebook for 7(a) loans is SOP 50 10 8.1, effective October 1, 2026.
- For an SBA-financed purchase by a new owner (an Initial Acquisition), your equity must be at least 10% of the total project cost, and that minimum cannot be reduced.
- A seller note can supply up to half of that equity only if it is on full standby: no principal or interest paid for the term of the SBA loan.
- An SBA loan for a new owner’s purchase cannot include a seller earn-out, and the seller cannot stay on as an owner or employee.
- The financing contingency belongs in the LOI and the purchase agreement, with dates.
Most buyers shop a practice loan by its rate. The lender’s conditions matter more: they decide how much cash you bring, whether the seller can be paid over time, whether an earn-out is allowed, and what you sign personally. Under the SBA’s current rules, a seller note that counts toward your equity can receive no payment of principal or interest until the SBA loan is paid off. A seller who learns that after the letter of intent is signed is a seller who wants to renegotiate.
This article is for a buyer with an LOI in view: the main sources (an SBA 7(a) loan, a conventional loan from a lender that lends to dentists, seller financing, an earn-out) and what each writes into the deal documents. Figures are current as of November 2026.
The lender’s conditions become terms of your deal
Each source of money arrives with conditions that end up in the purchase agreement. An SBA 7(a) loan follows the SBA’s Standard Operating Procedure, now SOP 50 10 8.1, published September 25, 2026 and effective October 1, 2026, which replaced the version in effect since June 1, 2025. A conventional loan follows the lender’s own credit policy, set out in its commitment letter.
The SBA calls the usual dental purchase an “Initial Acquisition”: it produces a new majority or largest owner who was not already an owner. An associate who has worked in the practice for at least 24 months and buys out its sole owner can instead be financed as an “Owner Buyout”, where the lender may reduce or waive the 10% equity and no quality of earnings report is required. The lender’s file must include every purchase agreement, with all schedules and amendments. The lender needs a business valuation prepared for the lender, not for you or the seller, by an accredited appraiser when the price is over $350,000. If the price exceeds the valuation, the difference must come from equity. From a business purchase price of $3 million, not counting owner-occupied real estate, the lender must also obtain a quality of earnings report, a requirement new in the 2026 version.
The amortization on a 7(a) loan for a change of ownership may not exceed 10 years, apart from real estate, and the practice’s earnings must cover the combined debt service after closing at least 1.25 times. Every direct and indirect owner and every required guarantor must be a U.S. citizen or U.S. national whose principal residence is in the United States. The June 2025 version also allowed lawful permanent residents.
Under an SBA loan, your equity and the seller’s note follow fixed rules
For an Initial Acquisition, the minimum equity injection is 10% of the total project cost, meaning all costs required to become operational regardless of who funds them, and it cannot be reduced or eliminated. Cash that is not borrowed counts without limit, including a gift.
Seller debt can count toward the equity on two conditions. It must be subordinated to the lender and on full standby, with no payments of principal or interest for the term of the 7(a) loan. And it sits in the group of limited sources that, together, may provide no more than half of the required equity. A standby note may accrue interest, added to the note and amortized after the 7(a) loan is paid in full, and the seller may take no action against you or the collateral without the lender’s consent.
A seller note that is not on standby is allowed, but it counts as debt. The total debt supporting the purchase, including that note, is limited to the business valuation and must be supported by the practice’s cash flow, and an interest-only seller note is tested as if it amortized over no more than 10 years. Seller debt from the purchase becomes eligible for refinancing once it has been in place and current, and not on standby, for at least 36 months, and the refinancing must meet the SBA’s 10 percent payment-improvement test.
Those rules decide what the seller is paid at closing and when the rest arrives, so they belong in the LOI, in numbers.
If you have a letter of intent in front of you and an SBA lender in mind, have the equity and seller-note terms read against the SOP before you sign. Schedule a confidential consultation
With SBA money, the seller cannot stay and cannot be paid an earn-out
In an Initial Acquisition, the seller may not remain as an officer, director, stockholder or employee of the practice. If the practice needs a transition period, it may contract with the seller as a consultant for no more than 24 months in total, extensions included; the June 2025 version allowed 12. Buying into a practice where the seller keeps part of the ownership is a different SBA category, a partial change of ownership, in which the seller may stay but must sign a personal guaranty of the loan; a buyer who has not worked there for 24 months and takes half or more is underwritten under the Initial Acquisition standards.
Seller earn-outs are prohibited in SBA change-of-ownership loans. A rebate to the buyer based on the practice’s performance is allowed, and a working capital true-up in the purchase agreement is not treated as a rebate. A deal that depends on an earn-out needs a non-SBA lender or a different price. How an earn-out is built when it is available is covered in earn-out agreements in dental practice sales.
You sign personally, and the lender may reach past the practice
Any individual who owns 20% or more of the borrower, directly or indirectly, must give an unlimited full guaranty of an SBA loan. A spouse who owns less than 20% must also sign a full guaranty when the spouses’ and minor children’s interests together reach 20%.
The lender must take a lien on the assets conveyed in the purchase. On an SBA loan for a practice purchase, whatever its size, a loan that is not fully secured by business assets requires the lender to take available equity in personal real estate, though not where the equity is less than 25% of the property’s value. On a standard 7(a) loan, which is one over $350,000, the same shortfall triggers life insurance in the amount of the shortfall for a business dependent on one owner’s active participation, with a collateral assignment to the lender acknowledged by the insurer’s home office; an existing policy can be pledged.
A conventional lender sets its own terms. Read its commitment letter for the guaranty, collateral, covenants and defaults, and negotiate limits on the guaranty before you accept.
A seller note is a loan with its own paperwork
When the seller finances part of the price, the seller becomes a lender: a promissory note with the amount, interest, payment schedule, maturity, default terms and prepayment rights, plus a security agreement if the note is secured.
Under Florida’s UCC, a security interest is enforceable only if value has been given, the debtor has rights in the collateral, and, for collateral the seller does not hold or control, the debtor has signed a security agreement describing it (s. 679.2031(2), Fla. Stat.). To perfect it, the seller files a financing statement, the UCC-1 (s. 679.3101(1)), with the Florida Secured Transaction Registry (s. 679.5011(1)(b)). A filed financing statement lapses after 5 years unless a continuation statement is filed within the 6 months before it expires (s. 679.515), which matters for a longer note.
The senior lender will require the seller to subordinate, and Florida’s UCC allows subordination by agreement (s. 679.339). The subordination or standby agreement decides when the seller is paid and what the seller may do if you default. The note also carries Florida documentary stamp tax of 35 cents on each $100, capped at $2,450 for a note taxed under that paragraph (s. 201.08(1)(a)); the tax side of a practice sale covers the rest.
The financing contingency belongs in the LOI, and the purchase agreement makes it work
A financing contingency works only if it says what financing, how much, and by when. In the LOI, state the source, the loan amount, your equity, the seller note’s terms (including standby, if the lender is SBA), and a date for a written loan commitment. In the purchase agreement, make the commitment a condition to closing, set an outside date, and require the seller to cooperate with the lender, since an SBA lender must verify the seller’s financial information against the seller’s IRS tax transcripts and visit the practice. More on the LOI’s limits is in the letter of intent in dental practice sales, and on what diligence must cover in where dental practice buyers get burned.
Plan working capital as part of the loan, since an SBA change-of-ownership loan may include it, and build the timeline from signed LOI to funded loan into the LOI’s dates.
Financing is a deal term, not an errand
The lender’s rules decide the equity, the seller note, the seller’s role after closing and what you sign personally, and each is easier to set in the LOI than to repair later. If you are buying a dental practice and have an LOI in view, have the financing terms reviewed before you sign it. Schedule a confidential consultation
Frequently asked questions
How much do you need to put down to buy a dental practice with an SBA loan?
Under SOP 50 10 8.1, effective October 1, 2026, a buyer who is not already an owner must inject equity of at least 10% of the total project cost, and that minimum cannot be reduced, unless the buyer is an associate of at least 24 months buying out the sole owner, in which case the lender may reduce it. A seller note can supply up to half of it only if it is on full standby, with no principal or interest paid for the term of the SBA loan.
Can the seller finance part of a dental practice purchase?
Yes. The seller’s note is a promissory note, usually secured by a security agreement and a financing statement filed with the Florida Secured Transaction Registry, and subordinated to the senior lender. With an SBA loan, the note is either on full standby or counted as debt the practice’s cash flow must support.
Can you use an earn-out when buying a dental practice with an SBA loan?
No. The SBA prohibits seller earn-outs in 7(a) loans that fund a change of ownership, though it allows rebates to the buyer based on the practice’s performance. An earn-out remains possible in a deal financed without SBA money, if the lender allows it.
Related reading
- Buying a Dental Practice in Florida: Key Legal Insights for Buyers
- The Legal Side of Due Diligence in Dental Mergers and Acquisitions.
- Legal and Regulatory Considerations in Dental Mergers and Acquisitions
- Emerging Trends in Healthcare Fraud and Abuse: Identifying Red Flags and Compliance Measures
Practice area: Dental Practice Sale and Acquisition Attorney in Florida
This article is for informational purposes only and is not legal advice. No attorney-client relationship is formed by reading it.