Business acquisition finance fund the deal, protect the business

What is business acquisition finance?

Business acquisition finance is funding used to buy all or part of an existing business, whether that's a trade purchase, a management buyout (MBO) or buying out a business partner. It is usually a combination of sources rather than a single loan, sized around the profits and assets of the business being bought.

Lenders financing an acquisition care about two things above all: can the combined business afford the repayments from its cash flow, and what security or assets support the lending? That's why most deals are built from layers. A term loan might sit alongside invoice finance or asset-based lending against the target's debtors, stock and equipment, a commercial mortgage on any property, deferred payments to the seller, and your own contribution.

As a broker, we help you work out a realistic structure, prepare the information lenders will want and approach the lenders on our panel that suit the deal. We are not lawyers or corporate finance advisers, so we'll work alongside your accountant and solicitor, who handle valuation, due diligence and the legal side.

For smaller UK businesses, finance under the government-backed Growth Guarantee Scheme may also be available from accredited lenders, at their discretion.

Key features

What businesses use it for

• Buying a competitor or supplier
• Management buyouts from retiring owners
• Buying out a business partner or shareholder
• Management buy-ins by outside teams
• Buying a business with its premises
• Bolt-on acquisitions for growing groups

Common building blocks in an acquisition

What lenders look for

Every lender is different, but most will want to understand the target's trading history and maintainable profits, the price and how it was reached, the experience of the people taking over, and how repayments will be covered after the deal. A clear plan for the first year after completion, and a sensible amount of headroom, often matters as much as the headline numbers.

Under the Growth Guarantee Scheme, the British Business Bank says finance can be used for any legitimate business purpose, for businesses with turnover up to £45m, at facility sizes up to £2m. The government guarantee is given to the lender, not the borrower, and your business remains fully liable for the debt. Whether a scheme-backed facility can be used for a particular acquisition is a decision for each accredited lender.

What lenders typically look at

• Information memorandum or summary of the target business
• Target's last two to three years of accounts and current management accounts
• Heads of terms or offer letter showing the price and structure
• Buyer CVs, showing relevant experience
• Cash flow forecast for the business after completion
• Details of your own contribution and any other funding