How to finance a business acquisition
Deposit expectations, how much a bank will lend, asset based lending, seller finance, and the working capital requirement buyers routinely forget to budget for.
Very few acquisitions are funded from a single source. Most combine your own money, borrowing serviced by the business you are buying, something secured against its assets, and an element the seller agrees to wait for.
How those pieces stack determines what you can afford, what you carry personally, and whether the deal survives its first bad quarter.
A typical funding stack
Illustrative £6m acquisition of a business making £1.2m of adjusted EBITDA.
Your own contribution
Lenders want to see it, and for UK SME acquisitions a personal or group contribution of roughly thirty to fifty per cent of the price is a common expectation.
It can be cash, equity released from an existing business, or capital from investors backing you. What matters to a lender is that you carry meaningful risk, because a buyer with nothing at stake is a buyer who can walk away.
Senior debt
Usually the largest external piece, serviced from the target’s own cash flow. Lenders look at consistent profitability across three years, the quality of the management team staying on, customer concentration, and whether earnings are contracted or won again annually.
Leverage in the UK lower mid market typically sits around two times EBITDA, though it moves with sector, asset backing and the strength of the covenant. The binding constraint is almost always debt service cover rather than a multiple.
Expect a debenture over the company’s assets, and expect personal guarantees to be discussed. They are taken at the lender’s discretion in line with normal commercial practice.
Asset based lending
Where the target has debtors, stock, plant or property to lend against. It can sit alongside senior debt and lift the total available, and it is often what makes a deal possible in asset heavy sectors where earnings alone would not support enough borrowing.
It costs more than senior debt and brings ongoing reporting obligations, so it is a tool rather than a default.
Seller finance and deferred consideration
The seller leaving part of the price outstanding, repaid over an agreed period. It reduces what you have to raise externally, and it keeps the seller interested in the handover going well.
It is also negotiating leverage in both directions. A seller who will not defer any of the price is telling you something about their confidence in what happens next. Structures are covered on our earn outs page.
Government backed lending, and when it is relevant
The Growth Guarantee Scheme, administered by the British Business Bank, gives accredited lenders a seventy per cent government guarantee on facilities up to £2m. It was extended to run until 31 March 2030, and in July 2026 the Chancellor announced additional capacity, terms of up to ten years for term loans and asset finance, and an increase in the turnover eligibility threshold from £45m to £54m.
Two things worth understanding. The guarantee protects the lender, not you. The borrower remains fully liable for the debt. And acquisition is an eligible purpose only where the individual lender accepts it, so it needs confirming rather than assuming.
Realistically, at a £2m facility cap it is a meaningful tool for smaller acquisitions and largely irrelevant above the lower mid market. If you are buying a business at £15m, it is not part of your structure.
Funding shapes what you can buy. Worth settling the structure before the search rather than after you have found something.
See how the pilot worksThe thing buyers most often underestimate
Working capital, which has to be budgeted separately from the purchase price. Commonly ten to twenty per cent of the price again, held in reserve.
A business bought on a cash free debt free basis arrives with a normalised level of working capital and no more. If it has a long cash cycle, retentions, or a seasonal swing, you fund that yourself from day one while also servicing the debt you just took on.
Deals fail after completion more often than before it, and this is the most common reason.
What lenders actually assess
- Debt service cover. Can the target’s cash flow cover the borrowing with headroom, tested against a downside case
- You. Relevant sector experience, track record and personal financial position
- The management team staying. If the seller is the business, the lender is lending against someone who is leaving
- Customer concentration. One client at forty per cent of revenue changes the risk entirely
- Quality of earnings. Whether the adjusted figure survives scrutiny. Our adjusted EBITDA calculator covers what gets accepted and rejected
- Asset backing, as security and as a fallback
Sort the funding before the search
An acquirer with a funded structure and a clear brief is a credible buyer, and sellers can tell. An acquirer still working out how they would pay for it is a conversation that stalls at the first serious question.
It also changes what you look at, because leverage capacity determines the size of business you can realistically transact on.
Answered.
How much deposit do I need to buy a business?
For UK SME acquisitions a contribution of roughly thirty to fifty per cent of the price is a common expectation, though it varies with sector, asset backing and how much the seller will defer. Lenders want to see meaningful risk carried by the buyer.
How much will a bank lend against a business acquisition?
Leverage in the UK lower mid market typically sits around two times EBITDA, moving with sector and asset backing. The binding constraint is usually debt service cover rather than a multiple: whether the target’s cash flow covers the borrowing with headroom under a downside case.
Is the Growth Guarantee Scheme useful for acquisitions?
For smaller deals, potentially. It gives accredited lenders a seventy per cent guarantee on facilities up to two million pounds and runs until 31 March 2030. Acquisition is an eligible purpose only where the individual lender accepts it, and the guarantee protects the lender rather than the borrower, who remains fully liable.
What do buyers most often forget to budget for?
Working capital, which sits outside the purchase price and is commonly another ten to twenty per cent of it. A business bought cash free and debt free arrives with a normalised working capital level and no more, and funding the cycle while servicing new debt is the most common cause of post completion difficulty.
Funding first, then the search
A funded buyer with a clear brief is credible, and sellers can tell. Settle the structure before you start looking.
See how the pilot works