Guide · 9 min read
How to get a loan to buy a business: what lenders assess, the deposit and security they expect, how the target's accounts drive the loan size, the documents to prepare and the mistakes that get applications declined.
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 →A loan to buy a business is debt advanced against the earnings and assets of the company being purchased, repaid out of that company's own cash flow. The lender is not really underwriting you: it is underwriting the target, and the question in front of a credit committee is whether the business you want to buy generates enough cash to service the loan with room to spare.
That reframing changes how an application should be prepared. The buyer's experience and equity matter, but the case is won or lost on the target's accounts, the price agreed and the structure proposed. This guide sets out what UK lenders assess, how much they will advance, the deposit and security expected, the documents to have ready, the reasons applications are declined and how long the process realistically takes.
You can, and there is a deep market for it. Four types of lender compete for UK acquisition loans and they behave differently.
These are names active in this market, framed for orientation rather than as a recommendation or any indication that a particular funder will consider a specific case. Our lender panel page sets out who does what, and our panel runs to 40+ banks, debt funds and asset based lenders.
The target's ability to repay, in that order and before your CV. A credit paper is built in roughly this sequence.
Two to three years of profitable filed accounts, current management figures, and an adjusted EBITDA the lender is prepared to accept. Then the questions behind the number: how much revenue is contracted rather than repeat, what the largest customer represents as a share of turnover, whether margins have been stable or drifting, and whether the business traded through the last downturn.
Whether the EBITDA turns into cash. A lender compares operating cash flow with EBITDA and looks for 80% or better; conversion of 50% signals working capital or capital expenditure consuming the profit, and it reduces the debt on offer regardless of the reported earnings. Our guide to what EBITDA is explains where the gap comes from.
The binding test. Free cash flow after corporation tax and maintenance capital expenditure, divided by interest plus scheduled capital repayments, needs to reach 1.20x to 1.30x on the base case and stay above 1.00x in a stressed case. The ratios are worked through in leverage ratios and debt to EBITDA.
Sector experience, a track record of running a business of comparable size, personal credit history, and how much of your own money is going in. A buyer with sector expertise and 35% equity is a far easier case than a first-time buyer with 15%, and where the incumbent management team is staying, that continuity is worth real leverage.
Lenders form a view on value and they will not fund an overpayment. If the market is paying five times earnings for a business of that type and you have agreed seven, the shortfall lands on your equity, not on the loan.
Enough to make most deals work, and less than most buyers first assume. The starting point is not a percentage of the price but the cash flow calculation, worked here on an illustrative target.
A business has adjusted EBITDA of £1.8 million. Deduct corporation tax of roughly £330,000 at the 25% main rate and maintenance capital expenditure of £250,000, and about £1.22 million of cash is available for debt service. At a required cover ratio of 1.25x, the structure can carry annual debt service of about £975,000. On a six year amortising loan at an indicative 8.5% all-in, that supports senior debt of roughly £5.4 million, or 3.0x EBITDA.
If the agreed price is £9 million, the senior loan covers 60% of it. Layer in an invoice discounting facility against the debtor book, a vendor loan for part of the balance and the buyer's equity, and the deal funds. If the agreed price is £12.6 million, seven times earnings, the same £5.4 million of senior debt covers 43% and the equity requirement roughly doubles. Nothing about the target changed. The price did. Test your own numbers in the business acquisition loan calculator.
Indicatively, 30% to 50% of enterprise value from the buyer and management as at September 2026, and lenders care about its composition as well as its size.
Buying with nothing down is very close to impossible through mainstream lenders. A senior lender advancing against a target's cash flow needs the buyer to have something at risk, because the equity is the buffer that absorbs the first bad year before the loan is exposed.
More than most first-time buyers expect, and the package is fairly standard.
None of it is unusual and all of it is negotiable at the margins, particularly the cap on a personal guarantee and the definition of what the debenture catches. Those negotiations happen between credit approval and signing, and they are much easier then than afterwards.
Assembling this pack before approaching lenders is the single biggest determinant of speed. Cases stall on missing information far more often than on credit judgement.
| Document | Why the lender wants it | Where it comes from |
|---|---|---|
| Three years of filed statutory accounts for the target | To establish trading history, margins and the depreciation and amortisation charges behind EBITDA | Companies House or the vendor |
| Current year management accounts, monthly if available | To confirm the last twelve months of earnings and that trading has not deteriorated | The vendor or the accountant acting for the target |
| Adjusted EBITDA schedule with supporting evidence | To agree the number the loan is sized on and test which add-backs are genuine | Buyer, adviser or financial due diligence provider |
| Aged debtor and creditor listings | To assess working capital, customer concentration and any asset based lending capacity | The accounting system of the target |
| Three-year integrated forecast: profit and loss, balance sheet, cash flow | To test debt service cover, covenant headroom and the downside case | Buyer with adviser support |
| Sources and uses schedule | To confirm the whole requirement is funded, including fees, stamp duty and working capital | Buyer or arranger |
| Heads of terms or the draft share purchase agreement | To confirm price, structure, what is being bought and any deferred elements | The parties and their solicitors |
| Buyer curriculum vitae, personal assets and liabilities statement | To assess management capability and the equity contribution | Buyer |
| Proof and source of the equity funds | Anti-money laundering requirements and confirmation the deposit is real | Bank statements, sale completion statements, investor commitments |
| Details of existing debt, leases and hire purchase in the target | To calculate pro forma net debt, which is often higher than the buyer assumed | The vendor |
| Customer contracts, licences and property leases | To test whether revenue and premises transfer with the shares | The vendor and legal due diligence |
Rarely for mysterious reasons. Eight causes account for most declines, and six of them are fixable before an application is submitted.
The pattern is worth stating plainly: applications fail on price, on cash flow and on late disclosure. All three are within a buyer's control at the point an offer is made.
| Stage | Typical duration | What happens |
|---|---|---|
| Debt capacity assessment | 2 to 5 working days | Adjusted EBITDA built, senior debt sized against free cash flow, sources and uses drafted |
| Indicative terms from lenders | 1 to 3 weeks | The case goes to selected banks, debt funds and asset based lenders for competing terms |
| Credit approval | 2 to 4 weeks | Full credit paper, management meeting, sensitivity analysis, covenant setting |
| Due diligence | 3 to 6 weeks, in parallel | Financial and legal diligence, and commercial diligence on larger deals |
| Documentation | 3 to 6 weeks, in parallel | Facility agreement, debenture, intercreditor deed and share purchase agreement negotiated |
| Completion and drawdown | 1 week | Conditions precedent satisfied, security registered, funds released |
| Total | 8 to 14 weeks | Longer where accounts need reconstructing or several funders are involved |
On cost, budget lender arrangement fees of 1% to 2% of the facility, legal fees for both the buyer and the lender, financial due diligence from an accountancy firm, and stamp duty at 0.5% of the consideration on a share purchase. 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 no fee at all if the transaction does not complete.
Preparation and honesty, in that order. The cases that go through credit first time share the same features.
That last point is most of what an arranger contributes. We are not a lender: we build the case, size the debt, and take it across our panel of 40+ banks, debt funds and asset based lenders so that the terms are competitive and the covenant package leaves room to trade. Behind that sits 25 years in banking with significant transactional experience including leveraged buyouts and acquisitions, and £400m+ raised, which mostly means knowing what a credit paper needs to contain before it is written.
If you have a target in mind, the useful next step is the target's last two years of accounts and its current management figures. From those we can tell you within a few days what the business will support. Read how to finance a business acquisition for the funding routes in detail, our business acquisition loans page for the smaller end of the market, and what a leveraged buyout is for the wider structure, or speak to us about the specific deal.
Yes, and it is one of the most established forms of UK business lending. Banks, challenger banks, debt funds and asset based lenders all advance money against the earnings and assets of the company being bought, on the basis that the target's own cash flow repays the loan. What you cannot usually do is borrow the whole price: lenders expect the buyer to contribute equity of roughly 30% to 50% of enterprise value, and they size the debt on what the target's free cash flow services with headroom rather than on what the vendor is asking.
As an indicative guide for September 2026, senior debt of 50% to 70% of the purchase price on a profitable trading company, equivalent to 2.5x to 3.5x adjusted EBITDA, over four to six years. Adding asset based lending against debtors and stock, a vendor loan and mezzanine can take total debt to 3.5x to 5.0x EBITDA. Those are bands rather than entitlements. The real limit is debt service cover: most UK lenders want free cash flow after tax and maintenance capital expenditure to cover interest and capital repayments by at least 1.20x to 1.30x, and that test binds long before the leverage multiple does.
No. Interest and arrangement fees on borrowing taken out for the purposes of the trade are generally deductible against taxable profits, which at the 25% main rate of corporation tax shelters up to 25 pence in the pound. Capital repayments are not deductible, because repaying principal is not an expense. There is also a ceiling: the corporate interest restriction limits a group's deductible net interest to 30% of tax-EBITDA once net interest expense exceeds £2 million in a period. Your accountant should confirm the position for your structure before you rely on it.
In layers, cheapest first. Senior bank debt takes the largest slice at the lowest cost. Asset based lending against the target's debtors, stock and plant releases cash from its own balance sheet without adding to term debt. A vendor loan leaves part of the price outstanding with the seller and reduces the equity you need on day one. Mezzanine fills a remaining gap at a higher coupon, and private equity funds the rest where the deal is larger than the buyer's own resources. Most completed UK acquisitions use at least three of those five.
It is possible for very small purchases and it is rarely a good idea. A personal loan is consumer borrowing: the interest is not deductible against the company's profits, the sums available are small relative to most acquisitions, and the debt sits with you rather than with the business that generates the cash to repay it. Where personal funds are needed to complete the equity contribution, releasing capital from a property or a pension arrangement with proper advice is usually a better route. Corporate acquisition debt exists precisely so the business can carry its own purchase cost.
Below roughly £2 million of debt, expect to be asked. Most banks and specialist lenders will want directors to give a personal guarantee, frequently capped at a share of the facility, alongside a debenture over the target and a pledge of its shares. As deal size and equity contribution rise, the security package moves towards corporate security and cross guarantees between group companies, and sponsor-backed deals above about £5 million rarely involve personal recourse. Take independent legal advice on any guarantee before you sign it.
The British Business Bank operates the Growth Guarantee Scheme, under which accredited lenders provide facilities to smaller UK businesses with a government guarantee standing behind part of the lender's exposure. It is delivered by the lenders rather than by the British Business Bank directly, and eligibility including whether an acquisition is a permitted purpose is decided by the accredited lender within the scheme rules. Start Up Loans, by contrast, are aimed at new and very early stage businesses at much smaller sums and are not an acquisition product. Check current scheme terms with the lender before building a structure around them.
This guide is general information about unregulated business lending, not tax, legal or accounting advice. Pricing, leverage, cover requirements and timescales are indicative as at September 2026 and every case is underwritten 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.
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