Business acquisition lenders: who funds buying a company

A business acquisition lender is any lender that funds the purchase of an existing business: its shares, a controlling stake or its trading assets. Some are banks with dedicated acquisition teams. Others are unsecured lenders and regional funds that list buying a business, or a management buyout, among the uses of an ordinary loan.

The lender is underwriting a change of owner, so it looks at two things at once: whether the business being bought can carry the repayments, and whether the buyer can run it. Our guide to acquisition finance explains how a purchase is usually structured and what lenders assess. This page is about the lenders themselves.

Start with the size and shape of the deal, then rule lenders in or out on their published criteria. A loan to buy a business in the UK can be anything from a five-figure sum for a small shop to a multi-million pound buyout, and lenders sit at very different points on that range.

1. Deal size. Check the lender's minimum and maximum. A lender whose minimum is £1 million will not look at a £150,000 purchase.
2. Term. A loan repaid over 12 months puts far more pressure on the business's cash flow than one repaid over five years.
3. Who can borrow. Some lenders lend only to limited companies or LLPs, some only in certain regions, some only to professional practices.
4. Security and guarantees. Whether the lender takes a debenture over the company, a charge over property or a personal guarantee from you.
5. Equity. How much of the price the lender expects you to fund from your own money or the seller's deferred payments.
6. Early repayment. Whether you can clear the loan without a fee if the business does well or you refinance.

Most lenders in the table below publish a deal size, but only some publish a term, and none publishes a minimum equity contribution, so ask each one directly.

These lenders name acquisitions, buyouts or buying a business as a use of the product shown. The table is built from each lender's profile in our directory of business lenders, in alphabetical order. It is not a ranking, and a lender's terms can change after the date shown.

• Cynergy Business Finance, the asset-based lending arm of Cynergy Bank, lists acquisitions among the uses of funding from £200,000 to £40 million against receivables, plant and machinery, stock and property. Facilities other than asset finance and block discounting must include a receivables facility, so it suits a target with a sizeable sales ledger. Our guide to asset-based lenders explains how this kind of lending works.
• Federal Capital lends £5,000 to £200,000 unsecured over 3 to 12 months and lists acquisition, MBO and director buy-out or buy-in among its uses. Applications come only through finance brokers.
• FW Capital manages regional funds that lend from £25,000 and lists buying a business as a use. It lends only in its funds' areas of northern and South West England and Wales, and says finance generally cannot be used to refinance existing lenders.
• Kingsley Asset Finance offers unsecured professional practice loans of £25,000 to £75,000 to established, profitable practices, and lists funding a practice acquisition among the uses. It asks for home-owning personal guarantees.
• Kingsway Finance says its professional loans for registered professionals such as accountants, solicitors and vets can cover partner buyouts and acquisitions, within its £10,000 to £250,000 range. It works through commercial finance brokers.
• LendingCrowd lends £75,000 to £500,000 over 6 to 60 months to limited companies and LLPs with two years' trading and turnover of at least £100,000, and lists management buyouts and acquisitions as uses. Loans above £350,000 may need asset security as well as a personal guarantee.
• OakNorth Bank structures acquisition and management buyout loans from £1 million to tens of millions, amortising or with a lump sum at the end. It looks at trading history, turnover, profitability and, for some loans, EBITDA.
• Swishfund lends £10,000 to £400,000 over up to 24 months to UK limited companies with at least one set of filed accounts, and lists business acquisitions as a use. It may take a debenture and asks for a guarantor, usually a director and shareholder.

Short unsecured loans of 24 months or less suit a small purchase, or a top-up alongside other funding, more than a full buyout: the repayments come out of the target's cash flow from the first month. Larger deals are usually funded by a bank or asset-based lender, sometimes with mezzanine lenders filling the gap between senior debt and the buyer's equity.

It varies by lender and applicant, and none of the lenders above publishes a fixed percentage. What is consistent is the principle: a lender wants the buyer to have money at risk, because a buyer who has put in nothing of their own has less to lose if trading dips.

The amount a lender asks you to bring tends to move with:

• How steady the target's profits and cash flow have been over the last few years.
• How much security the business has, such as property, equipment or debtors.
• Your experience of the sector and of running a business of that size.
• Whether the seller will defer part of the price or accept an earn-out.
• How the price compares with what the business earns.

Deferred payments to the seller reduce what you need to borrow on day one, but lenders usually want them to rank behind the loan. Our management buyout guide covers how vendor finance works when the buyers are the existing managers.

Expect to give a lender two sets of evidence: one about the business you are buying and one about you. Exact lists vary by lender and deal size.

• The target's filed accounts, often for the last two or three years, and up-to-date management accounts.
• Recent business bank statements for the target, and for your own company if it is the buyer.
• The heads of terms or draft sale agreement, showing the price and how it is paid.
• A business plan and cash flow forecast for the business under your ownership.
• Your CV and evidence of relevant experience, especially for a buy-in.
• Details of the security on offer and of any existing borrowing.

Whether you buy the shares or the assets changes what the lender can take as security and what passes to you. GOV.UK says TUPE protects employees when a business moves from one employer to another, with their jobs, terms and continuity of employment transferring to the new employer, and that the identity of the employer must change for it to apply. Our guide to buying a business covers the share and asset routes in more detail.

After a share purchase, the company's register of people with significant control will change. Companies House says a PSC is usually someone with more than 25% of the shares or votes, and that a change must be reported within 14 days of confirming it.

The interest rate is one part of the cost. Lenders price acquisition lending case by case, and the lenders above do not publish rates for it, so compare offers on the total repayable once every fee is in.

Under the Regulated Activities Order, credit above £25,000 taken wholly or mainly for business purposes is exempt from consumer credit regulation, and lending to a limited company is generally outside it in any case. Read the loan agreement and any personal guarantee with that in mind, and take legal advice before signing.

A loan is rarely the whole answer. Buyers commonly combine it with one or more of these:

• Seller finance. Part of the price is paid over time, which lowers the sum to borrow upfront.
• An earn-out. Part of the price depends on the business hitting agreed targets after completion.
• Equity investors. A co-investor or private equity partner takes a share in return for cash.
• Asset finance against the target's equipment. Useful where the business owns vehicles or machinery; see our asset finance page.
• A government-backed loan. Some lenders, Kingsway Finance among them, offer term loans under the Growth Guarantee Scheme; the guarantee is to the lender and you remain fully liable.

If you are not sure which lenders would look at your deal, you can check your funding options with a soft search that does not affect your credit score. A lender's full application may involve a hard search, and all finance is subject to status and lender criteria. More lender guides are in our lenders category.