Business acquisition loans, sized on the target's cash flow.

The shares or the trade and assets, plus everything that travels with them. A single facility usually covers the consideration, the repayment of debt sitting inside the target, the working capital the business needs from the first week, and the arrangement and professional fees. Some lenders split it: a term loan for the price, a revolving credit facility or invoice finance line for working capital, and hire purchase left in place on the vehicles and plant. Asset finance already running inside the target can usually stay exactly where it is, which preserves capacity for the price. Splitting is cheaper, because working capital priced as a revolver costs less than working capital funded by a six-year term loan.

What the loan does not fund is the part of the price no lender will carry. That gap is filled with your own cash, a vendor loan, deferred consideration or an equity investor, and it is the first thing we size. Debt service cover: free cash flow after tax and capex divided by loan repayments.

Between half and two thirds of the price, as a rule of thumb, and more only where the balance sheet or a junior layer allows it. Lenders work from adjusted EBITDA rather than the asking price: our indicative senior band is 2.5x to 3.5x EBITDA as at September 2026, so a business with £900,000 of adjusted EBITDA supports roughly £2.25 million to £3.15 million of bank term debt, whatever the seller is asking. Where the target owns freehold property, a commercial mortgage against it stacks on top and can lift total borrowing well past the cash flow multiple.

The real constraint is service, not size. Funders test the financial capacity of the business rather than the ambition of the buyer. Free cash flow after tax and maintenance capital expenditure has to cover interest and capital repayments at 1.25x with headroom against a downside case. That is why two businesses with identical EBITDA borrow different amounts: the one converting most of its earnings into cash wins. Illustratively, a target on £900,000 of EBITDA converting 70% of it to cash generates about £630,000 of servicing capacity, which supports roughly £2.4 million over six years at an indicative 8.5% before covenant headroom. Worked example only; every case is underwritten on its own numbers.

Run your figures through the acquisition loan calculator

Four to six years on capital and interest is the norm, sometimes seven where property forms part of the security. Pricing is indicative at 7% to 10% all-in for a bank facility and 9% to 14% all-in from a specialist cash flow lender as at September 2026, quoted as a margin over the Bank of England Bank Rate or over SONIA rather than as a fixed number, so the cost moves with the reference rate. Arrangement fees of 1 to 2% are typical and usually deducted at drawdown.

Two features are worth negotiating hard. A capital repayment holiday of three to twelve months protects cash while you take control of the business, and it costs the lender little. A modest balloon at maturity, say 10 to 20% of the original loan, lowers the monthly burden and is refinanced or repaid on exit. Alongside these sit the covenants: leverage, debt service cover and sometimes minimum EBITDA, tested quarterly. We negotiate the headroom in those covenants against your forecast, because a covenant set to the base case breaches on any bad quarter. The benefits of getting that right are felt in year three, not on the day the financing completes.

Behind it, and it is the cheapest money in the deal. A vendor loan leaves 10 to 30% of the price outstanding with the seller, repaid over two to three years, subordinated to the senior lender by a deed and usually with repayments blocked while any covenant is in breach. Sellers accept it more often than buyers expect, because it can improve the total price achieved and, in the right circumstances, spread their tax. It is not free: interest is normally charged, and the seller will want security ranking behind the bank.

For the lender, vendor paper does two useful things. It reduces the senior loan needed, and it keeps the seller financially interested in the handover going well, which is worth more than a warranty. Deferred consideration and earn-outs work similarly, tying part of the price to performance after completion. On a stretched deal, the combination of a vendor loan and an asset based line against debtors and plant frequently closes a gap that no amount of arguing with a credit committee will close. Vendor financing and asset finance are the two cheapest additions to most funding packages.

Debt finance keeps the business yours. You borrow, you repay with interest, and the shares stay where they are. Equity finance sells part of the acquiring company to an investor instead, which removes the monthly payment and shares the financial risk, but permanently shares the value you go on to create. For most owner-managed purchases in the United Kingdom the answer is mostly debt finance with a modest equity element, because the returns on a business bought at four to six times earnings are worth keeping. Where the price runs well ahead of what the accounts will service, equity finance stops being a choice.

That trade-off is what buyouts turn on. Management buyouts and larger leveraged buyouts, the LBOs, are simply this decision taken to its limit: as much debt as the cash flow will safely carry, and the smallest equity cheque that closes the gap. The benefits of the debt route are obvious and so is the risk. Every extra turn of leverage lifts the return on your equity and shortens the distance to a covenant breach, and the financing that looked comfortable on the plan can look tight on a bad year.

Our own bias is conservative. We would rather structure business loans the target can service in a poor year than maximise the headline figure, because the buyer carries that risk for the next six years and we do not. Where an investor is involved, private equity buyout finance covers the equity side, and LBO versus MBO compares the two routes for growth-stage businesses.