18/10/2025
Insights
Taking out a loan to buy a business is not only possible but also one of the most common ways prospective owners finance their acquisitions.
Understanding the various business acquisition loan options available, along with their requirements and implications, can help you make informed decisions when pursuing your entrepreneurial ambitions.
Continue reading to learn more about acquisition financing in the UK, and how Eddisons Business Sales can assist you.
What types of loans are available for buying a business?
Commercial bank loans
Traditional high street banks offer commercial loans for business purchases, typically covering 50-70% of the acquisition price. These loans usually require substantial collateral and a strong credit history, but offer competitive interest rates for qualified borrowers.
Asset finance
Asset finance allows you to borrow against the assets of the business you are acquiring, such as equipment, vehicles or property. This option can be particularly attractive when purchasing asset-rich companies in sectors like manufacturing or transport.
Seller financing
Some sellers may agree to defer part of the purchase price, effectively lending you money to complete the acquisition. This arrangement demonstrates their confidence in the company and can make negotiations more flexible.
Alternative lenders
Specialist business acquisition finance providers and peer-to-peer lending platforms offer more flexible criteria than traditional banks, though interest rates may be higher. These lenders often process applications faster and consider factors beyond just credit scores.
What are the requirements for securing business acquisition loans?
Deposit
Most lenders expect you to contribute 20-30% of the purchase price as a deposit, demonstrating your commitment to the acquisition. A solid business plan showing how you will operate and grow the company is essential, along with financial projections for at least three years.
Credit history
Your personal credit history plays a significant role in loan approval decisions. Lenders will also examine the target business's financial performance, reviewing profit and loss statements, balance sheets and cash flow records from the past three to five years.
Expertise
Industry experience or relevant qualifications can strengthen your application considerably. Lenders want assurance that you have the skills and knowledge to run the business successfully.
How much can you borrow to buy a business?
The amount you can borrow depends on multiple factors, including the business's profitability, your financial position and the lender's criteria. Commercial loan providers typically lend between two to four times the business's annual profit, though this varies significantly based on the sector and individual circumstances.
For businesses with substantial tangible assets, you may be able to borrow up to 80% of the asset value. Service-based businesses with fewer physical assets might see lower loan-to-value ratios, often around 50-60% of the purchase price.
Your ability to service the debt is paramount. Lenders will assess whether the business generates sufficient cash flow to cover loan repayments whilst maintaining healthy working capital.
Tips for improving your chances of loan approval
- Proper preparation significantly enhances your prospects of securing business acquisition finance. Start by improving your personal credit score several months before applying, addressing any outstanding issues on your credit report
- Engage professional advisors early in the process. Accountants can help prepare robust financial projections, whilst business brokers can provide valuable market insights and comparable sales data that strengthen your case
- Approach multiple lenders to compare terms and improve your negotiating position. Building relationships before you need funding can also prove beneficial when the right opportunity arises
- Be transparent about any challenges or risks associated with the acquisition. Lenders appreciate honesty and will value your awareness of potential difficulties, along with your strategies to address them.
Get expert support with business acquisition financing
Securing a business loan to buy a company requires careful planning and expert guidance. Our team at Eddisons Business Sales can connect you with suitable lenders and support your acquisition journey from initial search to successful completion.
If you are ready to explore a business acquisition and take the next step towards ownership, call 0113 340 9840, register as a buyer or complete our contact form to arrange a confidential discussion about your requirements.
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