Acquisition Finance for Buying a Business: What Buyers Should Know

How an acquisition is typically funded

An acquisition may be funded through the buyer's own capital, external financing, seller financing, investment capital, or a combination, depending on the transaction. The right mix generally depends on deal size, the buyer's existing resources, and what the seller is willing to accept as part of the structure.

What a financing route typically wants to see

• The target business's financial statements and recent performance
• The proposed purchase price and how it was arrived at
• The buyer's own contribution and financial standing
• The structure of the deal — asset purchase versus share purchase, and any earn-out or deferred consideration
• The buyer's plan for the business post-acquisition, particularly where cash flow is the intended repayment source

Why the transaction structure matters to financing

Whether the deal is structured as an asset purchase or a share purchase affects what can be offered as security and how the financing itself is structured — an asset purchase can sometimes use the acquired assets as security more directly than a share purchase can. This is one of several reasons the financing conversation and the deal-structuring conversation tend to happen together, not sequentially.

What buyers should prepare before approaching a financing source

A clear picture of the target's financials, a defensible view of the purchase price, and a credible plan for the business afterward — financing sources generally want to see that the buyer has done real diligence, not just identified an opportunity.

A practical starting point

Lining up financing conversations early, in parallel with deal negotiation, rather than after terms are agreed — financing availability and terms can materially affect what price and structure actually make sense.