Can I get a business loan to buy another business?

2 min read

Combined viewRepayment comes from both businesses

Target mattersThe bought company's trading is assessed

To the companyBorrowing sits with the buyer, no personal guarantee

How lenders assess an acquisition

The lender looks past the headline price to the cash the merged operation will produce. They want to see that repayments are comfortably covered once the two businesses run as one, allowing for any costs of bringing them together. Clear accounts for the target, a sensible price, and a credible plan for the first year after purchase all strengthen the case. Model the repayment against expected combined profit before you commit — the business loan route works best when the numbers have headroom.

Structuring the deal

Acquisitions are often funded by a mix: some cash from the buyer, some borrowing, and sometimes deferred consideration where part of the price is paid over time. Getting that structure right keeps repayments affordable in the vulnerable early months. A revolving facility alongside a term loan can help absorb the working-capital bumps that follow a merger.

The risks to price in

The main risk is overpaying, or assuming the two businesses will combine more smoothly than they do. Customers can leave, key staff can move, and promised savings can take longer than hoped. Building a margin of safety into the repayment plan — rather than assuming best case — is what separates an acquisition that strengthens the company from one that strains it.

Frequently asked questions

Can I borrow the full purchase price?

Rarely all of it. Lenders usually expect some contribution from the buyer so the risk is shared, and so repayments stay affordable against the combined cash flow.

Does the business I'm buying need to be profitable?

It helps considerably. Repayment comes from the merged operation's cash flow, so a profitable, steady target is a much stronger case than one that is loss-making.

Is buying assets different from buying the company?

Yes. You can buy a company's shares or just its assets, and the two have different legal and tax consequences. Take advice on which structure suits the deal before agreeing terms.