Business acquisition loans: how buying a business actually gets funded

Banks fund buildings readily and businesses reluctantly — yet thousands of UK acquisitions complete every year. The difference is structure. Here is how acquisition finance genuinely works: the funding stack, what lenders need to see, what the money costs, and why so many good deals get declined for fixable reasons.

By Peter Edwards ACMA CGMA — chartered management accountant and finance director; Granton is the finance arm of a family company that buys businesses itself.

Nobody lends 100% — the deal is a stack

The first thing to unlearn: an "acquisition loan" is rarely one loan. Lenders will typically fund a portion of a sensible purchase price; the rest comes from your deposit and, in the best-structured deals, from the seller. A typical shape for a £500,000 purchase of a profitable business:

The vendor loan is the most under-used tool in small-company deals. It bridges the gap between what lenders will advance and what sellers want, it keeps the seller invested in a clean handover, and lenders read it as the strongest possible signal: the person who knows the business best is willing to be paid from its future profits.

What lenders actually look at

• The target's profits, adjusted honestly. Sustainable, evidenced profit is what repays the debt — lenders typically want to see repayments covered comfortably by it, with headroom.
• Your deposit. Genuine skin in the game, usually meaning a meaningful percentage of the deal in cash — our fundability score weights this the way lenders do.
• You. Sector experience and management track record move both the decision and the price. First-time buyers complete deals every week — with more structure around them.
• Security. A debenture over the business as standard; property or assets widen options and cut pricing; personal guarantees are usual and negotiable in scope.
• The handover. Owner-dependent businesses frighten lenders. A tied-in vendor — consultancy period, vendor loan, retention — answers the fear in the file itself.

What acquisition money costs

Pricing tracks risk and security. Asset- or property-backed lending sits cheapest; cashflow term loans from the specialist and challenger lenders that dominate this market sit meaningfully above base; unsecured slices cost the most. Arrangement fees are standard, and the honest comparison is always the total cost of the structure over its life — a cheaper headline rate on a shorter, tighter facility frequently loses to a slightly dearer one your cashflow can actually live with. That arithmetic is precisely the work we do before anything is recommended.

Why good deals get declined

Nearly always one of five fixable things: the price doesn't square with the adjusted profits; the deposit is too thin with no vendor participation to compensate; the accounts arrive messy or stale; the buyer approached the wrong kind of lender for that deal; or the application simply fails to answer the questions a credit committee will ask. Every one of those is a structuring problem, not a verdict on the buyer — and each is far cheaper to fix before the first application than after a decline is on file.

How we run it

Granton's whole method is pre-underwriting: before any lender sees your name, a chartered management accountant reads the target's accounts the way the credit committee will, prices the realistic funding stack, fixes what would be queried, and takes the case to the lenders most likely to say yes on the right terms. Buying a business is also our own family company's habit, not just our trade — we sit on your side of this table for real. And if the honest answer is that the deal shouldn't be done at that price or in that shape, you'll hear it from us first, free, before anyone has spent anything.

Related reading

• MBO funding: every option compared — when the buyer is the management team.
• Buying out a business partner — the internal version of the same problem.
• The buyout calculator — rough numbers on your own deal in two minutes.