Acquiring a competitor is often the fastest route to meaningful growth: you gain their customers, their staff, their contracts, and sometimes their intellectual property in a single transaction rather than winning each of those elements one at a time. Business finance makes that possible without requiring you to have the full purchase price sitting idle in a bank account.
Structuring an acquisition loan
Acquisition loans are typically sized against the target company's earnings — most commercial lenders look at a multiple of EBITDA or net profit when deciding how much to lend. A business generating £200,000 of annual profit might support a purchase price of £400,000 to £600,000 depending on growth profile and sector — illustrative only and not a quote. The acquiring company borrows against its own balance sheet and serviceability, but lenders also scrutinise the target's financials closely.
Due diligence and the loan timetable
Most acquisitions involve a period of legal and financial due diligence before the transaction completes. It is worth approaching lenders early in that process — ideally as soon as heads of terms are signed — so that credit approval can run in parallel with your solicitor's work. Last-minute finance requests can delay completion and occasionally cause sellers to walk away, so building in at least four to eight weeks for the lending process is prudent.
What lenders examine in an acquisition deal
Beyond the standard company accounts and cash-flow projections, lenders will want to understand the combined entity's revenue post-acquisition, any customer concentration risk in the target, key-person dependencies, and whether the target has any significant liabilities you are assuming. A brief integration plan — even a one-page summary — can strengthen the application significantly by showing the lender you have thought through the risks.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: Buying out a co-director with a business loan, Hiring ahead of a large contract with business finance.