The usual way to buy a UK business is a package, not a single loan. You put in a deposit of roughly 10% to 30% of the price, a term loan or asset-based facility covers most of the rest, and vendor finance or an earn-out often closes the remaining gap. Lenders size the debt against the target's maintainable profit, typically 2 to 4 times EBITDA for senior debt, so the profit of the business you are buying matters as much as the price you agreed.
Key Takeaways
- Expect to fund the purchase in layers: your own money, senior debt, and usually some deferred payment to the seller.
- Deposits typically run from 10% to 30% of the price. A sensible planning figure is around 20% unless the business and the security are both strong.
- Senior debt is usually capped at 2 to 4 times EBITDA, with a few specialist lenders stretching to 5 times for very high-quality businesses.
- Most bank acquisition loans ask for a personal guarantee. Limits and caps can be negotiated before you sign, not after.
- The Growth Guarantee Scheme can back facilities up to £2 million at 70%, but it helps the lender's risk, not your affordability test.
- Funding runs alongside due diligence, and four to eight weeks from application to funds is normal.
The usual funding package
Acquisition finance is not the same as a standard business loan. It is assessed against two sets of numbers at once: your own financial position and the trading history of the business you want to buy. The lender needs to be satisfied that the combined business can service the debt once the deal completes. That is why it is more document-heavy and slower than everyday borrowing, and why one product rarely does the whole job.
The building blocks look like this:
| Layer | How it works | Where it fits |
|---|---|---|
| Your own money | Cash deposit, ideally with working capital held back | Every deal. Lenders expect a buyer contribution |
| Term loan | A lump sum from a bank or specialist lender, secured, repaid in fixed instalments | The core of most packages where the target has stable, provable cash flow |
| Asset-based lending | Borrowing against the target's invoices, stock, equipment or property | Asset-rich targets, or where a standard loan would not cover the price |
| Vendor finance | The seller leaves part of the price outstanding on loan terms, often repaid over 1 to 3 years | Cutting what you must borrow or raise upfront |
| Earn-out | A later payment that depends on the business hitting agreed targets | Bridging a disagreement over what the business is worth |
| Mezzanine | Subordinated debt that ranks behind the senior lender, with a higher interest rate or a small equity stake attached | Filling the gap between senior debt and the deposit you can raise |
| Equity investment | Shares in your company issued to investors | Larger deals, or buyers who want less debt after completion |
Deal size changes the shape. A £200,000 purchase of a small services business can be funded with a straightforward secured or unsecured business loan. A £3 million trading business needs senior debt, possibly mezzanine, and careful structuring of security and covenants. At the smaller end there are specialist acquisition and partner-buyout products in the £75,000 to £500,000 range. At the large end, a £150 million deal might be £100 million senior debt, £30 million mezzanine and £20 million equity. That is about 67%, 20% and 13% of the price, which is a useful proportion to keep in mind at any scale.
The type of purchase also steers the finance. In an asset purchase you buy specific assets, such as equipment, stock, brand and customer contracts, and usually leave liabilities behind unless you agree otherwise. In a share purchase you buy the company itself, with its assets and its liabilities. Asset-based lending lines up naturally with an asset purchase, while a term loan can support a share acquisition. The structure also changes the tax outcome, the due diligence scope and the legal documents, so decide it early. For a general view of how lenders assess a borrower before any of this, see our guide on how to get a business loan.
How much deposit do you need?
Deposit requirements in the UK typically range from 10% to 30% of the purchase price. Where you land in that range depends on:
- the strength of the target business
- the security available
- your own experience in the sector
- your personal credit profile
- the size of the acquisition
The same range looks like this from the lender's side. For a well-established, profitable target, lenders will typically fund between 70% and 90% of the price, with the rest coming from your deposit, seller finance or an equity investor.
The low end, around 10%, is where strong cash flow and good security sit together. Higher-risk situations push the number up, or push the lender towards stronger covenants and extra security instead. Where management buy a business they already run, a contribution of 20% to 30% of the cost is the usual expectation, with senior debt covering the rest up to the leverage limit.
If your credit history is weaker, expect a larger deposit, closer scrutiny of affordability and possibly higher interest rates. Security becomes more important too, and secured lending is often more realistic than unsecured borrowing in that position.
One point is worth being clear about. Vendor finance and mezzanine reduce the cash you need on completion day, but they do not reduce the price. They are still money you owe, and the senior lender will look at all of it when it asks whether the business can carry the repayments. Treat 20% as a working planning figure, and treat 10% as something you earn by showing a strong target and good security.
How lenders size acquisition debt
Lenders do not lend a percentage of the price and stop there. They size the loan against a multiple of the target's maintainable profit, commonly measured as EBITDA. For UK SME acquisitions, the standard multiple for senior debt is 2 to 4 times EBITDA. Some specialist lenders will stretch to 5 times for very high-quality businesses, but that is the exception.
This is the part that catches buyers out. The deposit percentage tells you what the lender might fund of the price. The EBITDA multiple tells you what the business can support. If the two disagree, the multiple wins, and an overpriced business is hard to fund in full even with a strong deposit. The debt has to be serviced from what the business earns after you own it, not from what you agreed to pay.
When assessing the deal, a lender looks at:
- the target's historical and projected EBITDA, which is the primary measure of whether the debt can be serviced
- the quality of revenue: whether customers are concentrated, contracted or recurring
- the management team's relevant experience and financial commitment
- the security available: the target's assets, property and your own assets
Serviceability is judged on the combined cash flow of you and the target, and the target business itself often becomes the main security. A buyer who arrives with deep knowledge of the target and a clear plan for the first year will usually get better terms than one who arrives with heads of terms and an optimistic projection.
Once the money is lent, the loan agreement usually carries financial covenants: ratios you must keep, such as interest cover, leverage (debt to EBITDA) and minimum liquidity. Build your forecasts so they show headroom against those tests, not bare compliance. A useful sense-check is to ask whether losing one contract would break the repayment plan. If it would, the structure is too tight.
Also match the term to the deal. If the payback period is five to seven years, a very short loan term strains cash flow for no good reason.
Vendor finance and earn-outs
Vendor finance means the seller accepts part of the price later, on loan terms. Repayment is often over one to three years and the interest rate is negotiable. It cuts the amount you must borrow or raise upfront, and it ties the seller's interest to the business doing well after the handover.
Lenders generally like it. It signals that the seller believes in the business under new ownership, and it reduces the external debt the bank is asked to provide. Where seller finance sits alongside senior debt or mezzanine, an intercreditor or subordination deed sets out who is repaid first and who can enforce.
An earn-out is different in one important way. Vendor finance is a debt you owe whatever happens. An earn-out is contingent: the extra payment arrives only if the business hits agreed financial targets after you take over. That makes it a good tool when you and the seller disagree about the future performance of the business. The seller can believe in the higher number, and you only pay it if it turns up.
Earn-outs go wrong in the drafting. If revenue recognition or cost allocation is not defined precisely, disputes are likely. Agree exactly how the targets are measured, who controls the business decisions that affect them, and what happens if you change the way the business is run. Put the mechanism in the sale agreement, not in a side conversation.
Security and personal guarantees
Most acquisition loans from high street and challenger banks ask for a personal guarantee, meaning you agree to repay the debt personally if the business cannot. Security may be a charge over business assets or property. For acquisitions it can include:
- commercial property
- residential property
- business assets
- the acquired business itself
Secured lending is the most common structure for acquisitions because it typically brings lower interest rates, larger borrowing amounts and longer repayment terms. Unsecured loans suit smaller acquisitions. If the premises are part of the deal, our guide to commercial mortgages covers that side.
In a larger deal, expect a full security package across you and the target: a debenture or general security agreement (fixed and floating charges over assets), share charges in a share deal, and guarantees from directors or group companies under a Deed of Guarantee and Indemnity. That guarantee can expose your personal assets.
Two practical points:
- Negotiate the guarantee before you sign. Ask for limits, a time-bound guarantee or a cap on liability. It is much harder to change afterwards.
- Register the security on time. In England and Wales most security must be registered at Companies House within 21 days of creation (Companies Act 2006, s.859A). Miss the window and the security can be void against a liquidator or administrator.
Decide in advance what you can offer as security and what you will not. Secured borrowing can unlock more money, but the security is at risk if repayments fail.
Government-backed options and their limits
The main government-backed route for an acquisition is the Growth Guarantee Scheme, which can support facilities up to £2 million with a 70% government guarantee. The guarantee reduces the lender's risk, so it can improve a lender's appetite. It does not replace the affordability test, and eligibility and lender criteria apply. It is not available on every deal, and not from every lender. Our guide to the Growth Guarantee Scheme sets out how it works.
Start Up Loans are aimed at early-stage businesses, so they are rarely the right fit for buying an established company. Other British Business Bank-supported schemes are generally smaller facilities and not particularly suited to large acquisitions. The honest summary is that government backing can help a deal that is nearly bankable. It is unlikely to rescue one that is not.
Due diligence and the team you need
Due diligence is the checking of the target's finances, contracts and legal position before you commit. It runs alongside your funding application, not after it, and your lender will usually want to see the same information your own advisers are reviewing.
The work splits into three strands:
- Financial due diligence. Lenders require this before committing. An accountancy firm, typically the buyer's advisers, tests the quality and sustainability of historical EBITDA, the working capital requirement and any hidden liabilities that could change the price or the debt capacity afterwards.
- Commercial due diligence. This looks at competitive position, customer relationships and market dynamics. Lenders do not always require it on smaller deals, but it is worth commissioning for any acquisition above £500,000 because it shows the lender you understand what you are buying.
- Legal and tax due diligence. A solicitor checks title, contracts, leases, licences and employment matters, including TUPE, and drafts the sale agreement, loan documents and security.
So your team is an accountant, a solicitor and, on larger deals, someone to run the commercial review, plus whoever is arranging the finance. Budget for professional fees properly. Legal, accountancy and valuation costs on an acquisition are typically higher than on a standard loan, and underestimating them is a common mistake.
The sale agreement carries the protections that matter once you own the business:
- Heads of terms, a non-binding outline of price and key conditions, agreed before diligence begins
- Warranties and indemnities, where the seller confirms facts about the business and agrees to compensate you if they prove false
- Completion accounts or a locked box, which fix exactly what working capital and cash the business has on the day you take over
- An earn-out clause, if part of the price depends on later performance
Lenders typically ask for two to three years of the target's accounts and management information, a business plan, evidence of relevant experience, details of key contracts and customers, and your own personal financial position. Expect a forward plan covering around five years, and a business valuation.
Plan for four to eight weeks from application to funds being released. Consents are the usual cause of delay: a landlord's consent to a lease assignment, a key customer's agreement to novate a contract, or a licence that has to be reissued. Start those early.
A worked example: £750,000 funded in four parts
Suppose you agree to buy a trading business for £750,000. A package could look like this:
| Source | Amount | Share of price |
|---|---|---|
| Your deposit | £150,000 | 20.0% |
| Acquisition loan, secured on commercial property | £500,000 | 66.7% |
| Vendor finance | £100,000 | 13.3% |
| Total | £750,000 | 100% |
The loan runs over five to ten years. Your cash at risk is the £150,000 deposit, not the whole price, which is the point of layering the funding.
Now apply the lender's test. On £500,000 of senior debt at 2 to 4 times EBITDA, the target needs maintainable EBITDA of:
- £125,000 or more if the lender goes to 4 times (£500,000 divided by 4)
- about £167,000 at 3 times (£500,000 divided by 3)
- £250,000 at 2 times (£500,000 divided by 2)
If the business earns £125,000 of EBITDA, the £750,000 price is 6 times that figure, and the loan is at the very top of the usual senior range. A lender at the cautious end would cut the loan, and you would have to find the difference from more deposit or more vendor finance. If it earns £250,000, the same loan is comfortable.
A smaller version of the same logic: on a £500,000 purchase with a £100,000 deposit (20%), the loan is £400,000. At 4 times EBITDA, the target needs at least £100,000 of EBITDA to support it. At 2 times, it needs £200,000.
Two checks before you sign:
- Test the downside. Model customer loss, margin pressure and a slower handover. If one lost contract breaks the repayments, change the structure.
- Keep working capital. Do not spend your last pound on the deposit. Stock, wages and integration costs arrive immediately after completion, and a business starved of cash in its first quarter is exactly where covenants get breached.
Mistakes that cost buyers money
- Overpaying relative to maintainable profit. It makes the debt harder to service, and it shrinks what the lender will advance.
- Leaving funding until after heads of terms. You lose time and options. Sound out lenders before you commit to a price.
- Treating one decline as the market's answer. A specialist lender or a blended package may fund a deal a generalist bank turns down.
- Over-reliance on personal guarantees. Negotiate caps and time limits before signing.
- Missing a consent or a filing. A late landlord consent delays drawdown, and a late Companies House registration weakens the security.
- Using generic contracts. Templates do not reflect your price mechanics, your earn-out or your lender's conditions.
Frequently Asked Questions
How much deposit do I need to buy a business in the UK?
Typically 10% to 30% of the purchase price. The lower end needs a strong target and good security. Weaker credit or higher risk pushes the figure up. Vendor finance can reduce the cash you need at completion, though it is still money you owe.
How much can I borrow against a business's profit?
Senior debt is usually sized at 2 to 4 times the target's EBITDA, and a few specialist lenders go to 5 times for very high-quality businesses. Divide the loan you want by those multiples to see the EBITDA you need.
Will I have to give a personal guarantee?
Most acquisition loans from high street and challenger banks ask for one. You can usually negotiate its scope: ask for a cap, a time limit, or a narrower guarantee before you sign the documents.
Is it easier to finance an existing business than a start-up?
Often, yes. An established business has accounts and a trading history, so a lender can assess affordability on evidence rather than a forecast alone. Poor or inconsistent records can stall underwriting.
How long does it take?
Allow four to eight weeks from application to funds being released, longer than a standard business loan, because the finance has to complete alongside the legal steps.
Deplexifi arranges acquisition funding for UK businesses, and the useful first step is a conversation about the target's EBITDA and the structure you have in mind, before the price is fixed.
Treating the deposit percentage as the whole story. Lenders cap debt at a multiple of the target's EBITDA, so if you pay too much for the profit, the gap lands on you.