Guide · 10 min read
How to finance a business acquisition in the UK: bank acquisition loans, cash flow lending, asset based lending, vendor finance, mezzanine and private equity, how they combine and how lenders decide what a target can carry.
Written by Matt Lenzie · Published 3 September 2026
Advice from Matt Lenzie · 25-year career banker (Bank of Scotland, Lloyds Banking Group). £400m+ raised for clients.
Founder profile →Business acquisition finance is debt and equity raised specifically to buy a company, sized on the target's earnings and secured on the target, the acquirer or both. Almost no UK acquisition is funded from a single source: a typical deal blends a bank term loan, a facility secured on working capital assets, part of the price left outstanding with the seller, and the buyer's own equity.
The order in which those layers are assembled matters more than the choice of any one of them. Start with the cheapest money the cash flow will carry, fill the gap with the next cheapest, and use equity for what is left rather than the other way round. This guide takes each of the six routes in turn, compares them in a single table, and shows how they combine in an illustrative lower mid-market structure.
More than the purchase price, and buyers regularly underfund the difference. The uses side of an acquisition funding schedule normally includes the price for the shares or the trade and assets, professional fees for legal, financial and commercial due diligence, lender arrangement fees, stamp duty at 0.5% on a share purchase, the working capital the business needs from day one, and a contingency for the completion accounts adjustment.
On a £9 million acquisition, fees and stamp duty of £450,000 and day one working capital of £300,000 are not unusual, so the funding requirement is £9.75 million rather than £9 million. Arriving at credit committee with a schedule that funds only the headline price is one of the quickest ways to lose a lender's confidence. Our acquisition finance page sets out how we build that schedule, and the business acquisition loan calculator tests what the resulting debt costs to service.
Not with the price. A lender works out the adjusted EBITDA, converts it to free cash flow after tax and maintenance capital expenditure, and asks how much debt that cash services with headroom. Only then does it compare the answer with what the buyer wants to borrow.
The arithmetic is unforgiving. A target with £1.8 million of adjusted EBITDA might produce £1.25 million of cash after corporation tax at the 25% main rate and £250,000 of maintenance capital expenditure. At a debt service cover requirement of 1.25x, that cash supports annual debt service of about £1.0 million, which on a six year amortising loan at an indicative 8.5% translates into roughly £5.4 million of senior debt, or 3.0x EBITDA. If the vendor wants six times earnings, the gap between £10.8 million of price and £5.4 million of senior debt has to be filled from somewhere, and every route below is an answer to that question. Our guide to leverage ratios and debt to EBITDA works the ratios through in detail.
An amortising term loan from a bank is the cheapest debt in the structure and therefore the layer to maximise first. Indicative all-in pricing as at September 2026 is 7% to 10%, priced as a margin over Bank Rate or SONIA, over a four to six year term with quarterly capital repayments, secured by a debenture over the target group, a share pledge and often personal guarantees on smaller deals.
Banks want two to three years of profitable filed accounts, evidence that EBITDA converts to cash, an equity contribution they consider meaningful, and covenant headroom against a downside case. They will normally also provide a revolving credit facility alongside the term loan so that seasonal working capital does not have to be funded from term debt.
Names active in this market include Barclays, HSBC UK, Lloyds Bank, NatWest and Santander UK among the clearing banks, and Allica Bank, OakNorth, Shawbrook, Cynergy Bank and Arbuthnot Latham among the specialist and challenger lenders, several of which have built dedicated acquisition finance teams for owner-managed deals. Our business acquisition loans page covers the smaller end, and our lender panel page lists who does what.
When the business is genuinely profitable but has almost nothing a bank can secure. Services, software, recruitment, healthcare and distribution businesses often have strong margins, contracted revenue and a balance sheet consisting of a few laptops and a debtor book, which makes traditional asset security irrelevant.
Cash flow lenders size the facility on earnings alone, typically at 2.0x to 3.5x EBITDA over three to six years, either amortising or with a bullet, at an indicative all-in cost of 9% to 14%. They accept concentration and intangibility that a clearing bank will not, and they price for it. Names active in this market include ThinCats, Caple, Growth Lending, Boost&Co and Frontier Development Capital, with the larger debt funds providing unitranche facilities above roughly £5 million of debt. Our cash flow lending page sets out how the underwriting differs from bank credit.
Cash, immediately, and often more of it than buyers expect. Asset based lending advances against the target's own balance sheet: typically up to 85% or 90% of qualifying trade debtors, a percentage of stock, and separate lines against plant, machinery and property. On a target with a £3 million debtor book, an invoice discounting line can release well over £2 million on day one, which is money that does not need to come from a term loan or from equity.
Indicative cost is 6% to 10% plus facility fees, which makes it the cheapest money in many structures, and it flexes with the business rather than amortising to a fixed schedule. The trade-offs are administrative rather than financial: reporting is monthly or weekly, the facility is monitored, and audits of the debtor book are routine. Names active in this market include Close Brothers, Aldermore, Arbuthnot Commercial ABL, Secure Trust Bank Commercial Finance, Time Finance, Praetura Commercial Finance and Leumi ABL.
Asset based lending is also the route that rescues a structure where debt service cover is tight, because releasing working capital reduces the term debt required and therefore the amortisation the cash flow has to fund.
A vendor loan is part of the price left outstanding by the seller, repaid over two to four years out of the business's cash flow, usually at 6% to 10% and subordinated to the senior lenders under the intercreditor deed. Deferred consideration and earn-outs achieve something similar by tying part of the price to future performance.
Three reasons it is often the most valuable single element of a deal:
The negotiation points are the interest rate, the repayment profile, whether payments are blocked while senior covenants are under pressure, and what security if any the vendor takes. Senior lenders will insist on the second of those, so agree it with the vendor early rather than discovering the constraint at documentation stage.
Both fill the gap between what the senior lenders will advance and the price, and they charge very differently for it.
Mezzanine is subordinated debt ranking behind senior lenders and ahead of shareholders, priced at an indicative 12% to 18% all-in including payment-in-kind interest that accrues rather than being paid in cash, sometimes with warrants over a small equity stake. It typically adds 1.0x to 1.5x EBITDA of leverage on top of senior debt. The case for it is arithmetic: a buyer paying a 15% coupon on £2 million keeps equity that might be worth several times that on exit. Names active in this market include Beechbrook Capital, Shard Credit Partners, Kartesia, Boost&Co and Muzinich. Our mezzanine finance page compares the cost against dilution.
Equity from a sponsor buys capacity rather than debt: capital for the acquisition and for the ones after it, plus board experience and a network. The price is dilution, an agreed exit horizon of usually three to five years, and a shareholders agreement that constrains what management can do alone. Names active in the UK mid-market include BGF, LDC, Inflexion, ECI Partners, Livingbridge, Bridgepoint, Synova, Maven Capital Partners, Palatine and Foresight Group. Our private equity buyout finance page covers how the debt sits alongside sponsor equity and shareholder loan notes, and LBO vs MBO explains where management teams sit in the structure. Teams buying their own employer should also read our sister site MBOFinance.co.uk.
| Route | Typical size | Indicative all-in cost (September 2026) | Security and ranking | Best suited to |
|---|---|---|---|---|
| Bank acquisition loan | 2.5x to 3.5x EBITDA, four to six years amortising | 7% to 10% | First-ranking debenture, share pledge, personal guarantees on smaller deals | Profitable trading companies with filed accounts and reliable cash conversion |
| Cash flow lending | 2.0x to 3.5x EBITDA, three to six years | 9% to 14% | Debenture, ranking senior or alongside a bank | Asset-light businesses: services, software, recruitment, healthcare |
| Asset based lending | Up to 85% to 90% of qualifying debtors plus stock and plant lines | 6% to 10% plus facility fees | Fixed and floating charges over the funded assets | Targets with substantial debtor books, stock or plant |
| Vendor finance and deferred consideration | 10% to 30% of the purchase price | 6% to 10%, often with blocked payment periods | Subordinated to senior lenders under the intercreditor deed | Deals where the price gap needs closing and the seller believes in the plan |
| Mezzanine finance | An extra 1.0x to 1.5x EBITDA | 12% to 18% including payment-in-kind interest | Second-ranking security, sometimes with warrants | Buyers who would rather pay a coupon than dilute |
| Private equity | 30% to 50% of enterprise value | Dilution plus a target return, not a coupon | Ordinary equity and shareholder loan notes, last in the queue | Larger deals, buy-and-build plans and teams without capital |
All figures are indicative bands for the UK lower mid-market as at September 2026, not offers, and every case is underwritten on its own merits.
Here is an illustrative example, not a transaction we have completed. A buyer agrees to acquire a distribution business with adjusted EBITDA of £1.8 million at five times earnings, so £9 million, with £450,000 of fees and stamp duty and £300,000 of day one working capital, giving total uses of £9.75 million.
| Sources | Amount | Multiple of EBITDA | Terms |
|---|---|---|---|
| Senior term loan | £5,400,000 | 3.0x | Six years amortising, indicative 8.5% all-in, quarterly covenants |
| Invoice discounting facility drawn | £800,000 | 0.4x | Revolving against the debtor book, indicative 7.5% plus fees |
| Vendor loan | £600,000 | 0.3x | Three years, 8%, subordinated with blocked payment periods |
| Buyer equity | £2,950,000 | 1.6x | Ordinary shares and shareholder loan notes |
| Total sources | £9,750,000 | 5.4x | Equity at roughly 33% of enterprise value |
Note what the structure does. Senior debt takes the cheapest 3.0x. The asset based line funds working capital from the target's own balance sheet rather than from term debt, which protects debt service cover. The vendor loan closes the last part of the price gap without dilution. Equity funds the remainder at a level that keeps the senior lender comfortable. Change any one element and the others move, which is why the schedule is built as a whole and stress tested rather than assembled piece by piece.
Budget eight to fourteen weeks for a straightforward share purchase and three to six months where the target's accounts need work or the structure involves several funders. Indicative terms take one to three weeks once the financial information is in hand, credit approval two to four weeks, and documentation of the facility agreement, intercreditor deed, debenture and share purchase agreement three to six weeks in parallel with due diligence.
On costs, expect lender arrangement fees of 1% to 2% of the facility, legal fees for the buyer and for the lender, financial due diligence from an accountancy firm, and commercial due diligence on larger deals. Our own fee is an arrangement fee of 1% of the debt raised, payable only on successful drawdown, with any introducer or procuration fee a lender pays us credited against it first, and nothing at all if the transaction does not complete.
Start with the target's numbers rather than the price. Two years of filed accounts and current management figures are enough for us to build the adjusted EBITDA, size the senior debt the cash flow supports, identify what asset based lending can release and show where the gap sits. That work takes days rather than weeks and it is the information that decides whether an offer is fundable.
We are an arranger, not a lender. We bring 25 years in banking with significant transactional experience including leveraged buyouts and acquisitions, and £400m+ raised, to the structuring, then take the case across our panel of 40+ banks, debt funds and asset based lenders for competing indicative terms. Read our guides to how to get a loan to buy a business and what a leveraged buyout is, test the numbers in the LBO calculator, then speak to us about the specific transaction.
A business acquisition is the purchase of an existing company or its trade and assets by another party. In the UK it takes two legal forms. A share purchase transfers the shares in the target company, so the buyer inherits the whole entity including its history, contracts, employees and liabilities, and pays stamp duty at 0.5% of the consideration. An asset purchase buys selected trade and assets out of the company, leaving unwanted liabilities behind with the seller. Most funded acquisitions of profitable trading companies are share purchases, because customer contracts, licences and accreditations transfer cleanly with the entity.
Harder than a working capital loan and easier than most buyers expect, provided the target is genuinely profitable and the buyer has meaningful equity. The realistic requirements are two to three years of profitable filed accounts for the target, adjusted EBITDA that converts to cash, buyer equity of roughly 30% to 50% of enterprise value, credible sector experience in the management team, and a price that leaves debt service cover above about 1.25x. Cases fail on price and on cash flow far more often than on the buyer, which is why we size the debt before an offer goes in rather than after.
Corporate finance convention groups them as horizontal, where you buy a competitor at the same point in the value chain; vertical, where you buy a supplier or a customer to control more of the chain; conglomerate, where the target operates in an unrelated market; and market extension or concentric, where the target sells related products or reaches a new geography. The distinction matters to funders because it drives the synergy argument. A lender will underwrite a horizontal bolt-on with obvious cost savings more readily than a conglomerate purchase whose logic depends on management bandwidth.
On a profitable trading company in the UK lower mid-market, senior debt of 50% to 70% of the purchase price is the working range as at September 2026, equivalent to senior leverage of 2.5x to 3.5x EBITDA. Layer in asset based lending, a vendor loan and mezzanine and total debt can reach 3.5x to 5.0x EBITDA, leaving sponsor and management equity at 30% to 50% of enterprise value. These are indicative bands, not offers. The constraint is always cash: the debt is sized by what the target's free cash flow services with headroom, not by a percentage of the price.
Very rarely, and almost never through mainstream lenders. A structure funded entirely by a vendor loan and deferred consideration exists in the market, but it depends on a motivated seller accepting nearly all of the risk, and lenders will not advance senior debt behind a buyer with nothing at stake. What does reduce the cash needed on day one is real: a substantial vendor loan, an earn-out tied to performance, asset based lending that releases value from the target's debtors and stock, and management equity credited as sweat where a team is buying its own employer.
On smaller deals, usually yes, at least in part. Below roughly £2 million of debt most banks and specialist lenders will ask directors for a personal guarantee, often capped at a proportion of the facility, alongside a debenture over the target and a share pledge. As deal size rises and the equity cheque grows, the security package shifts towards corporate security and guarantees between group companies, and sponsor-backed transactions above about £5 million rarely involve personal recourse. Any guarantee should be reviewed with your own solicitor before signing.
From a first conversation to funds drawing, eight to fourteen weeks is realistic for a straightforward share purchase with clean accounts. Indicative terms take one to three weeks once we have the financial information. Credit approval takes a further two to four weeks and runs alongside financial and legal due diligence. Documentation of the facility agreement, debenture and share purchase agreement takes three to six weeks and is normally the critical path. Deals slip because information arrives late or because the target's accounts need reconstructing, both of which are avoidable.
This guide is general information about unregulated business lending, not tax, legal or accounting advice. All pricing, leverage and timescales are indicative as at September 2026 and every case is assessed on its own merits. Lenzie Consulting Ltd is not authorised or regulated by the FCA; we arrange unregulated business finance for limited companies and LLPs only.
Enquiry
Initial consultations are always fee-free and confidential. Same-business-day callback from a former Bank of Scotland and Lloyds Banking Group banker who has sat on the credit side of leveraged and acquisition debt, not a chatbot or a paid lead form.