Business Acquisition Financing

A business acquisition loan is financing used to help purchase an existing business or complete a qualifying change in business ownership. Depending on the financing program, funds may be used toward the purchase price and certain other eligible expenses associated with acquiring and operating the business.

Business acquisition financing generally provides capital that helps a buyer complete the purchase of an existing company. The financing provider evaluates the buyer, the business being acquired, the purchase price, historical financial performance, cash flow, existing debt, transaction structure, and the business's ability to repay the proposed financing.

Depending on the financing program, business acquisition financing may be used to:

• Purchase an existing business
• Acquire a competitor
• Purchase a franchise
• Complete a partner buyout
• Finance a management buyout
• Purchase an ownership interest
• Support a qualifying ownership transition
• Purchase equipment or other business assets
• Provide eligible working capital associated with the acquisition

Permitted uses depend on the financing program and provider.

Business acquisition loan amounts can range significantly depending on the transaction. The amount available may be influenced by the purchase price, business valuation, historical revenue and profitability, cash flow, buyer qualifications, equity contribution, existing debt, collateral, and financing program.

Yes. The SBA 7(a) loan program can be used for qualifying complete or partial changes of business ownership. SBA-backed financing is commonly considered by buyers looking to purchase an existing business, subject to SBA eligibility requirements and participating lender approval.

The SBA 7(a) program generally allows loans of up to $5 million, subject to applicable SBA requirements. The amount a particular buyer can obtain depends on the acquisition, business cash flow, purchase price, financing structure, buyer qualifications, and participating lender underwriting.

The amount of cash or equity required depends on the financing program, lender, transaction structure, and buyer. Some acquisition transactions require the buyer to contribute a portion of the total project cost.

The exact amount should be determined based on the financing program and specific transaction rather than assuming that every business acquisition requires the same percentage.

There is no single credit score requirement that applies to every business acquisition loan. Financing providers may consider personal and business credit along with cash flow, buyer experience, equity contribution, collateral, existing obligations, and the financial performance of the business being acquired.

Potentially, although less-than-perfect credit can reduce the number of available financing options or affect rates, terms, loan amounts, and equity requirements. Financing providers generally consider the overall strength of the buyer and transaction rather than relying on one factor alone.

Financing providers may review information about both the buyer and the business being acquired. Documentation may include:

• Business tax returns
• Profit and loss statements
• Balance sheets
• Business bank statements
• Cash-flow information
• Existing business debt
• Purchase agreement or letter of intent
• Business valuation
• Buyer financial information
• Ownership and management experience
• Information about the intended acquisition

Requirements vary by financing provider and transaction.

Financing providers generally want to see sufficient cash flow to support the proposed acquisition debt and ongoing business expenses. Historical profitability and cash flow can therefore be important factors when evaluating a business acquisition.

A lender may also consider trends in revenue, expenses, owner compensation, existing debt, industry conditions, and other financial information.

A business valuation may be required for certain acquisition financing transactions. The financing provider may need to determine whether the purchase price is adequately supported by the value of the business and its assets.

Valuation requirements depend on the financing program, transaction, purchase price, and lender.

Potentially. Franchise acquisition financing may be available for eligible buyers purchasing an existing franchise or qualifying franchise opportunity. Available financing will depend on the franchise, buyer qualifications, financial performance, transaction structure, and financing program.

Yes. Depending on the circumstances and financing program, a business acquisition loan may be used to finance a partner buyout or other qualifying change in ownership.

The financing provider will evaluate the business, ownership structure, transaction, cash flow, buyer qualifications, and ability to repay the proposed financing.

Potentially. Established businesses may use acquisition financing to purchase competitors or complementary companies. An acquisition can help a business increase market share, expand geographically, add customers, acquire employees or equipment, and introduce additional products or services.

Approval depends on the financial strength and structure of the proposed transaction.

Depending on the financing program and transaction structure, financing may include eligible working capital in addition to funds used for the business purchase. Additional working capital can help support payroll, inventory, marketing, operating expenses, and other needs during the transition to new ownership.

Collateral requirements vary by financing program, provider, transaction, and available assets. The assets of the business being acquired may be considered as part of the financing structure, and additional collateral may be required in some transactions.

A financing provider will determine applicable collateral requirements during underwriting.

Most acquisition financing transactions require the buyer to demonstrate a meaningful financial commitment or otherwise satisfy the financing provider's equity requirements. The amount required varies by financing program and transaction.

Seller financing or other transaction structures may sometimes be incorporated into an acquisition, but buyers should not assume that a business can be purchased with no cash investment.

Potentially. Seller financing may be incorporated into some business acquisition transactions, subject to the requirements of the primary financing provider and applicable financing program.

The terms and treatment of seller financing can affect the buyer's required equity contribution and overall transaction structure.

The timeline varies depending on the financing program, transaction size, documentation, valuation requirements, buyer, business being acquired, and financing provider. More complex transactions, including SBA-backed acquisitions, may require additional underwriting and documentation.

Repayment terms vary based on the financing program, loan amount, assets being financed, and transaction structure. Some acquisition financing may offer longer repayment periods than short-term business financing products.

The applicable financing provider will establish the actual repayment term, interest rate, payment structure, and other conditions.

A business acquisition loan is specifically intended to help finance the purchase of a business or qualifying ownership change. A general business loan may be used for a broader range of purposes, including working capital, equipment, inventory, marketing, or expansion.

Some business financing programs can be used for both acquisitions and other eligible business purposes.

Qualification depends on both the buyer and the business being acquired. Financing providers may evaluate:

• Personal and business credit
• Buyer experience
• Available cash or equity
• Purchase price
• Business valuation
• Historical revenue and profitability
• Cash flow
• Existing debt
• Collateral
• Industry
• Transaction structure
• Ability to repay the financing

Strong business cash flow and a well-supported acquisition price can be important components of the underwriting process.

Start by providing information about the business you want to acquire, the purchase price, your financing needs, and your qualifications. Your information can then be evaluated to help identify business acquisition financing options that may fit the proposed transaction.

If you select an available financing option, you'll work with the applicable financing provider to submit required documentation and complete underwriting, approval, closing, and funding.