Funding a business acquisition: a starter guide

Acquisitions are funded in layers

Most SME acquisitions combine several sources: the buyer's own cash, a senior loan from a lender, deferred consideration paid to the seller over time, and sometimes asset-based finance against the target's debtors or equipment.

What lenders want to see

• Historic accounts for both the buyer and the target
• A clear rationale and integration plan
• Forecasts showing debt can be serviced from combined profits
• Due diligence findings, legal and financial

Using the target's assets

If the business being bought has a strong sales ledger, property or equipment, asset-based lending can fund a meaningful part of the price. This is often more accessible than a large unsecured loan.

Seller involvement

Deferred consideration or a vendor loan shows lenders that the seller has confidence in the business continuing to perform, and reduces the upfront funding needed.

Build in time

Acquisition finance takes longer than standard borrowing. Speak to funders early, ideally before heads of terms are signed, so the funding structure shapes the deal rather than the other way round.