Want to buy a business? Buying a business can be expensive – you’re likely investing in a new revenue stream, client base and an experienced team.
Enter: business acquisition loans.
Business loans to buy a business can help you reap the rewards of expanding your portfolio without the hit working capital. Here’s how to buy a business with a loan, if you can use a personal loan to buy a business and why the answer to “Can I get a loan to buy a business?” might be yes.
Using a loan to buy a business can be a great way to expand your company, become a business owner, or attack a new vertical while spreading the cost across a more manageable period of time. Here are some of the benefits.
There are many different types of business finance that can be used to purchase a business, each with their own terms, advantages, and repayment schedules. With the help of a broker like Funding Options by Tide, you may be able to find a finance option that fits your situation and needs.
As mentioned, there are many options when it comes to business acquisition finance, making repayment terms flexible. For instance, with a bridging loan, you could repay the sum in a year or so when you secure further finance. Whereas, with something like a commercial mortgage, you could spread the cost across consistent instalments spanning over 25 years.
Larger loans, spread across a longer period, and secured with an asset as collateral tend to come with lower interest rates when compared to something like short-term unsecured business finance.
We’ll ask a few questions about your business and the reason for your loan.
Our smart technology will compare quotes from up to 120+ lenders to help you find the ideal business loan.
We'll be there to guide you through every step of the process.
A secured business loan to buy a business requires collateral – often property or another significant asset. Considering acquiring a business is generally a large cost, this makes secured loans a popular way to fund the acquisition.
If you want to acquire the business and then either sell it within a year or two, or secure further funding to cover the acquisition after the fact, a bridging loan may be for you. A bridging loan is a type of short term business loan designed to bridge gaps between funding. For example, if you want a quick loan to buy an existing business but plan to refinance with a longer-term option down the line. Essentially, you get a bridging loan, buy the company, and then pay off the loan in a year or so once you’ve secured further financing.
When lenders talk about asset finance, they’re usually referring to one of two different types of funding. One involves spreading the cost of an asset across a specified period of time, while the other involves using an asset as collateral for a loan. Both of these can be suitable ways to purchase a business.
Mezzanine finance sits somewhere between equity and debt finance, but it usually comes with more capital than a business loan, and requires you to give up less control upfront than equity finance.
While this isn’t a loan, equity finance can help you purchase a business. Equity finance involves you selling shares of a business in exchange for funding. This means you own less of the business, but since it isn’t a loan, you don't have to repay that funding in instalments.
If you don’t have assets or prefer not to use them as collateral, you might consider an unsecured loan to buy a business. Unlike a secured loan, an unsecured business loan doesn't require the use of an asset as collateral for the loan. This usually means interest rates are higher and loan amounts are lower.
Some buyers consider using a personal loan to buy a business. Personal loans usually come with smaller limits and higher interest rates. If you plan to use a personal loan for business purposes, ensure your lender permits it, and you fully understand the terms before proceeding.
It’s not uncommon for buyers to use a range of different finance types to purchase a business. For instance, a business owner might use a 50% equity finance, 30% secured loan, and 20% mezzanine finance split to purchase a new business.
If you're ready to take your business to the next level, use our business loans calculator to get an idea of what you can afford.
Want to understand the cost of your loan?
Use our business loan calculator below to find out how much you can borrow to take your business to the next level.
Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
Monthly payments
-
Monthly interest
-
Total interest
-
Length of loan
-
Total cost of loan
-
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
Acquisition finance is used to fund the purchase of a business. It can be used by private investors, other businesses, and investment groups.
Business acquisition finance comes with set repayment terms, which will depend on the type of finance and the agreement – repayment can span anywhere from a few months to several decades.
Along with repaying the loan amount, you'll also pay interest rates and fees. Interest rates can range anywhere from 5% to 20%, depending on the loan type, your personal circumstances, and your credit score or company’s creditworthiness.
Start by putting together your business plan. Why are you buying this company? How will it improve your operations? How will you achieve growth? You’ll also want to put together cash flow projections, gather together financial records, and prepare information about the business you intend to purchase.
Once you’ve prepared your documents, it’s time to find a lender. Narrow your search down first by finance type, then amount, then lender. A broker, like Funding Options by Tide, could help you here. We work with over 120 lenders, so are able to cross-reference options with greater speed than borrowers may be able to do when searching alone.
Once you’ve gathered your documents, found your lender, and have conducted due diligence, it’s time to apply. A business broker or financial advisor can help you do this, or, if you’d prefer to go it alone, approach the lender asking how to apply – you may be able to do this online or in branch.
Eligibility criteria differ by lender and funding type. As a general rule of thumb, lenders will assess your financial health as a business or investor. This will require you to present evidence of profitability and experience. For instance, you may be asked to share cash flow projections, information, and documentation on your current debt levels, financial statements, and the lender will likely run a hard credit check on you and your business to determine your creditworthiness.
Beyond that, they’ll also want to find out more about the business you're purchasing. You may be asked to submit a business plan outlining how the acquisition will generate profit, what an integration or merger might look like, and how you have determined the business’ value. Some lenders like to run due diligence checks, or at the very least, know you've run sufficient checks. If you're planning to put up an asset as collateral for the loan, lenders might like to see more documentation surrounding those assets. For instance, if you're using a property as collateral, they might like to see proof of ownership.
That’s what we do – help eligible business-borrowers find the most suitable financing options for them. Whether or not we can help you personally depends on a few key factors, such as how much you’re hoping to borrow (we don’t facilitate loans over £20 million) and where you’re based (we work with UK businesses). To find out if we can help you, start by getting a quote here. We’ll get in touch to let you know if you’re eligible and if so, how much you might be able to borrow.
Repayment terms depend heavily on the type of loan you're seeking. We’ve included a few example repayment terms below so that you can see what the terms might look like.
Example A: Let’s say you use a bridging loan to purchase a smaller company in a new location with plans of expanding your geographical reach. You have settled on a bridging loan because you're selling a set of apartments. The sale will take around a year to complete, and the business you want to buy is up for sale today.
The business you're purchasing is £1 million, and you plan to repay the full amount with the sale of the apartments in exactly 12 months. While there are many different types of bridging loans, the one you take charges monthly interest payments, which you pay at the end of each month. Once the 12 months are over, you pay the full £1 million back and the loan is closed out.
Example B: Now, let’s imagine you take out mezzanine finance as your form of business acquisition finance. You’ve chosen to go this route because the amount of funding you need is too large to gain access to as a standard loan. The repayment conditions also suit you best, as you believe you'll make back the money spent on the business within the next 7 years.
Sticking to the £1 million example, in this case, it’s more likely you would have a loan term of around 7 years. Again, lender terms vary, but with a structure like this, you might pay interest-only payments for the first few years, followed by a balloon payment at the end of the 7 year period, when you would repay the full loan amount.
Example C: Now let’s say you’ve chosen to go for a secured business loan. Same amount of money, but now you’re spreading it across 10 years. In this case, there wouldn't be a final balloon payment. Instead, you'd pay the full loan off slowly on a monthly basis, spread across the entire 10 years, with the addition of interest.
There are several ways to finance the purchase of a business. The first is with your own personal savings, by taking out a personal loan, or with the help of friends and family.
The next is with the support of crowdfunding or peer-to-peer lending, which is when multiple external sources pool financial resources together to help you make the acquisition. This is often done with the support of a platform such as Kickstarter and GoFundMe.
Next, there’s business finance, which is essentially what we’ve been describing on this page – you take out a loan or some form of external funding, which you repay with the addition of interest over a predetermined period of time.
Finally, there’s equity financing. This is when another investor (often a Venture Capital or Private Equity company) becomes part-owner in the new business with you. You might gain access to this funding by selling a piece of your current business, or by co-investing in the new business together.
Depending on your goals, you could also explore:
Getting a business loan to buy a car – this is a good option for company vehicles, including fleets
Dreaming of opening a restaurant? You could consider using a business loan to buy a restaurant
If you work in agriculture or would like to invest in farming, you could use a business loan to buy a farm
Getting a business loan to buy a franchise can be a helpful way to start a business under a working framework
Many businesses set up their company premises by using a business loan to buy a building
Property developers and buy-to-let investors often use business loans to buy property or real estate
If you’d like to use a business loan for any of the above options, reach out to us to get a quote.
Okay, let’s say you run a car dealership. You have three branches in the South East of England and you’d like to expand into the South West. You’ve found a great dealership nestled in a popular town in Devon. They already have a thriving customer base, some great employees, and their own supplier connections – best of all, they’re happy to sell the dealership to you and the price fits your budget.
To buy the dealership, you decide to use a secured business loan. The lender enables you to spread the cost of the purchase over a period of 7 years and they’re happy to use your personal home (which you own mortgage-free) as collateral, along with a personal guarantee from you as the business owner. You use the loan to buy the dealership, integrate it into your business, and then repay the loan, with the addition of interest, in instalments spread across the entire period. You opt for a fixed-interest rate, so the amount you pay each month doesn’t change, which makes it easy to budget for and predict.
Each lender varies in which documents they require, but you may be asked for some of the following:
A business plan
Cash flow projections
Information about the business
Income statements
Exit plan
Evidence of ownership for any assets being used as collateral
Bank statements
Your passport and proof of address
Incorporation documents or a business licence
Details of any other financial arrangements you're currently in
Balance sheets
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.