Business acquisition financing

Most acquisitions combine several sources

Few buyers pay entirely in cash. A typical structure combines the buyer’s own equity with one or more forms of debt, and sometimes a portion deferred to the seller. The right mix depends on the business’s cash flow, the buyer’s resources, and what the seller will accept.

Common financing sources

Each source has its own requirements, timelines, and trade-offs. Terms vary by lender and change over time, so treat the descriptions below as general orientation rather than offers or guarantees.

• Buyer equity: the cash the buyer contributes, which lenders generally require
• SBA-backed loans: bank loans partially guaranteed by the U.S. Small Business Administration, frequently used for small business acquisitions
• Conventional bank or credit-union loans: usually require stronger collateral or credit
• Seller financing: part of the price paid to the seller over time under a promissory note
• Earn-outs: a portion of the price contingent on the business’s performance after closing

What lenders typically review

Lenders focus on whether the business’s cash flow can comfortably cover the new debt, and on the buyer’s ability to run it. Expect requests for several years of business tax returns and financial statements, a personal financial statement, evidence of the equity injection, and a description of your relevant experience.

Preparing these documents before you make an offer shortens the financing timeline and makes your offer more credible to a seller.

Questions to ask early

Before committing to a structure, understand the total equity required, whether any personal guarantee or collateral is expected, how long approval and closing typically take, and whether the lender has financed businesses in the same industry.

EVYAR Private Markets can review your situation and, with your permission, introduce you to financing partners. EVYAR does not lend money, and no approval or terms are guaranteed.