Very few business acquisitions are paid for in cash. The deals that complete are assembled — a layer of the buyer's own equity, a slice of senior bank debt, sometimes a facility secured against assets, often a chunk left with the seller to be paid over time, and, increasingly, borrowing raised against the intangible value inside the target itself. The skill of financing an acquisition is knowing which layers you can access, how they stack, and how much you genuinely need to put in yourself.
This guide sets out how to finance a business acquisition for a UK operator: the sources that make up the capital stack, how much cash you really need at completion, how a lender decides whether the target can service the debt, how your choice of deal structure changes what you can borrow, and — a route most acquirers overlook — how a documented intangible-asset base widens your funding options. It is written for owners and operators buying a UK business, including those growing by acquisition. If you are also weighing what to pay, read it alongside how to value a business you want to buy.
The single most useful shift in thinking is to stop asking "can I afford this?" and start asking "how is this deal funded?" A price of, say, £4m is rarely £4m of your money moving on completion day. It is a target you assemble from several sources, each with its own cost, its own security, and its own claim on the business once the deal is done.
Those figures are illustrative, not promises — every deal is priced on its own facts. But they make the point. The equity you contribute is usually a minority of the price, because the rest is carried by lenders who take security and by a seller who agrees to wait. Understanding acquisition finance as an assembly problem, rather than a savings problem, is what turns a deal you "cannot afford" into one you can structure.
The price is not the cash you need. An acquisition is funded by a capital stack — your equity plus several layers of borrowed and deferred money — and the art is arranging the layers so the business can service them and you keep enough control.
Each source below sits at a different level of risk and cost. Broadly, the cheaper the money, the more security it demands and the more senior its claim; the more patient or unsecured the money, the more it costs. A well-built acquisition uses several layers deliberately.
At the base of the stack is the money you put in yourself: personal cash, retained profits from an existing business, or equity from co-investors. This is the most expensive capital in one sense — it is fully at risk and earns no fixed return — but it is also what makes everything above it possible. Lenders want to see the buyer with meaningful "skin in the game", because your equity is the cushion that absorbs the first losses if the business underperforms.
In the UK, for a funded SME acquisition, buyers commonly contribute somewhere between a fifth and two-fifths of the price in equity, with the balance filled by debt and seller finance. The less equity you can raise, the more you must lean on the layers above — and the more the deal structure has to work to reassure the parties providing them.
Senior debt is a term loan from a bank or debt fund, secured by a first charge over the target's assets and repaid over an agreed period. It is the cheapest borrowed money in the stack, which is exactly why it comes with the strictest test: the lender lends against the target's ability to generate cash, not against your ambitions for it.
A senior lender will size the loan on a multiple of normalised earnings and will impose covenants — ongoing conditions on leverage, interest cover, and cash generation that the business must keep meeting after completion. Miss them and the loan can be recalled. Senior debt is the cheapest layer for a reason, but it is unforgiving of an over-optimistic forecast, which is why the serviceability analysis later in this guide matters so much.
Where senior cash-flow debt is capped by earnings, asset-based lending is sized by the value of specific assets. An invoice-discounting or factoring facility advances cash against the target's trade debtors; other facilities lend against stock, plant, or property. Because the lender's security is a defined pool of assets it can realise, asset-based lending can sometimes fund more than cash-flow lending alone — particularly for asset-rich, working-capital-heavy businesses.
For many modern service and technology businesses, though, the balance sheet is thin: the value is in relationships, know-how, and software that traditional asset-based lending does not recognise. That gap is precisely where the intangible-backed route later in this guide comes in.
One of the most useful — and most under-used — layers is money left with the seller. Rather than being paid in full on completion, the seller agrees to receive part of the price later, effectively lending it back to the deal.
A vendor loan note is a formal instrument: the seller holds a note for an agreed sum, repaid over a set term, usually with interest, and often ranking behind the bank. Deferred consideration is the broader idea — any part of the price paid after completion, whether by instalments, on milestones, or at a fixed future date. Both do two valuable things at once: they reduce the cash you need on day one, and they keep the seller financially invested in a clean handover.
A seller who accepts a loan note or deferred consideration is, in substance, expressing confidence that the business will keep performing after they leave. That signal cuts both ways — it lowers your funding need, and it is exactly the kind of alignment a senior lender likes to see sitting beneath their debt.
An earn-out ties part of the price to the target's performance after completion, typically over one to three years. It is usually discussed as a way to bridge a valuation gap — the seller believes the business is worth more than the buyer will underwrite today, so a portion of the price is made contingent on the business proving it. But an earn-out is also a form of financing: the contingent slice is paid from earnings the business generates after you own it, not from cash you raise up front.
Structured well, an earn-out reduces both your funding requirement and your risk, because you only pay the top slice if the results that justify it actually arrive. Structured badly — with vague targets or metrics the seller no longer controls — it becomes the single most common source of post-deal dispute. Define the measure precisely, in writing, before completion.
Here is the layer most acquirers never consider, and the one where a documented intangible base changes the arithmetic. The reason a thin balance sheet caps traditional borrowing is that banks lend against tangible security — property, plant, debtors. Yet in a typical modern target, the assets that actually produce the earnings are intangible: the brand, the customer contracts, the proprietary technology and data, the registered intellectual property. Around 90% of a modern company's value sits in exactly the assets conventional lending ignores.
IP-backed lending closes that gap. It is finance secured against a business's intellectual property and other intangible assets, and in the UK it is more advanced for SMEs than in most markets — with government-backed schemes explicitly designed to help lenders take security over intangibles. It is relevant to an acquisition in two directions at once. You can borrow against the target's intangibles as part of funding the purchase, and you can borrow against your own existing intangible base — the assets in the acquiring company — to raise the equity you contribute. Either way, the deal turns on one thing: someone has to identify, value, and evidence the intangible assets before a lender will lend against them. Undocumented value is not bankable value.
Opagio Intangibles identifies and classifies a company's intangible assets across The Opagio 12, values them with recognised methods, and produces the evidence a lender needs to advance against them — the Value Drivers Register and a Normalised P&L. Run it on a target as part of diligence, or on your own business to fund the equity you put in. See what a lender — and a target's diligence — will find. Book a demo of Opagio Intangibles.
Bringing the layers together makes the trade-offs concrete. The table below shows a stack for an illustrative £4m acquisition of a stable, profitable UK business. The proportions are indicative — every deal is assembled differently — but the shape is representative of how funded SME acquisitions come together.
| Layer | Source | Illustrative amount | Security / basis | Relative cost |
|---|---|---|---|---|
| Senior debt | Bank term loan (~2.5× EBITDA) | £1,800,000 | First charge over assets; covenants | Lowest |
| Asset-based lending | Invoice discounting facility | £400,000 | Trade debtors | Low |
| IP-backed lending | Facility against the target's intangibles | £500,000 | Charge over IP / intangible assets | Low–medium |
| Vendor loan note | Deferred, seller-financed | £600,000 | Subordinated; repaid over term | Medium |
| Earn-out | Contingent on performance | £300,000 | Paid from future earnings | Deferred / contingent |
| Buyer equity | Your cash / co-investors | £400,000 | First-loss capital | Highest (at risk) |
| Total consideration | £4,000,000 |
The instructive figure is the bottom line: on a £4m price, the buyer's own cash at completion is £400,000 — a tenth of the headline. The rest is carried by lenders taking security and a seller agreeing to wait. Note, too, how the intangible layers do the heavy lifting that a thin balance sheet otherwise blocks: the IP-backed facility and the vendor's confidence together contribute more than the senior bank debt's headroom would allow on cash flow alone.
An operator buying a £4m software services business found the bank would only support £1.8m against cash flow, leaving a gap that would have forced a much larger personal contribution. A documented Value Drivers Register — thirty-one identified intangible assets, valued and evidenced — supported a £500k IP-backed facility and gave the seller the confidence to leave £600k in a loan note. The buyer completed on £400k of their own equity instead of £1.5m.
The honest answer is: less than the price, but more than the equity line in the stack. Beyond your equity contribution, an acquisition carries costs that catch first-time buyers out, and they are almost always payable in cash on or around completion.
The first-loss layer lenders require you to fund — commonly a fifth to two-fifths of the price for a funded SME deal, though a well-structured stack with strong intangible security can reduce it.
Legal fees, financial and tax diligence, lender arrangement fees, and broker or adviser costs. Budget a meaningful percentage of the deal value — these are paid in cash and are not usually fundable.
In the UK, a share purchase attracts stamp duty at 0.5% of the consideration. An asset purchase does not, though other charges such as SDLT on any property may apply instead.
The business needs enough cash to trade from day one. If the deal is done on a completion-accounts or locked-box basis, the working capital position is negotiated — but you must fund any shortfall and the buffer for the first months.
Add these to your equity layer and the true "cash to complete" is materially higher than the headline equity number — often the single most common reason a deal that looked funded stalls at the last stage. Model it early, and see how much money you need to buy a business for a fuller breakdown.
Every debt layer in the stack answers to one question: can the business generate enough cash to pay the borrowing back on time, with margin to spare? Lenders call this serviceability, and it is assessed on the target's numbers — normalised — not on the price you agreed.
The core test is debt service cover: the ratio of the cash the business generates to the debt repayments and interest it must make. A lender wants that ratio comfortably above 1, so there is headroom if trading dips. To get there, they will normalise the target's earnings — stripping out the seller's discretionary costs, one-offs, and any earnings that will not survive the change of ownership — to see the real, repeatable cash the debt will be serviced from. They will then stress that figure against downside scenarios and against the covenants they intend to set.
Two things strengthen a serviceability case more than any forecast. The first is a clean, defensible picture of normalised earnings — which is why a Normalised P&L is worth building before you approach a lender, not after they ask. The second is quality of the revenue underneath those earnings: contracted, recurring, diversified income services debt far more reliably than lumpy or concentrated income, and lenders price that difference directly.
Do not present a lender with the seller's headline profit and expect it to stand. They will normalise it themselves, and if their number is lower than yours, the loan shrinks and the gap lands on your equity. Arrive with the normalised figure already worked out and evidenced — it sets the terms of the conversation rather than conceding them.
Whether you buy the company's shares or its assets is usually framed as a tax and liability decision — and it is — but it also shapes what you can borrow and how the price is funded.
In a share purchase you buy the company itself, taking on its assets, contracts, and liabilities as a going concern. It is often the seller's preference for tax reasons in the UK, and it keeps contracts and licences intact (subject to any change-of-control clauses). For financing, the whole entity — including its intangible assets and any existing IP — comes with the deal, so the target's own borrowing capacity, including IP-backed lending against its intangibles, transfers with it. The trade-off is that you inherit the company's history, so lenders and their lawyers will scrutinise its liabilities closely.
In an asset purchase you buy selected assets and, usually, leave the liabilities behind. Buyers often prefer it for the cleaner risk position and because it can allow assets to be picked up at values that support capital allowances. But it fragments the target: contracts may need to be novated, licences reassigned, and — critically for financing — intellectual property and intangible assets must be explicitly identified and transferred by the sale agreement. Anything not named does not come across. If you intend to borrow against the target's intangibles, an asset deal makes documenting and assigning those assets not just good practice but a precondition of the financing.
The point for financing is that structure and funding are not separate decisions. A documented, asset-level view of what you are buying — especially the intangibles — is what lets you choose the structure with open eyes and secure borrowing against the right assets under it. Work through the full sequence, from origination to completion, in the buy a business hub.
Everything above converges on a single, repeatable advantage. The acquirers with the widest funding options are not the ones with the most cash — they are the ones who can evidence value that others leave invisible.
A thin balance sheet does not mean a low-value business; it usually means a business whose value is intangible and simply unrecorded. Identify and document those assets — on the target as part of diligence, and on your own company to fund your equity — and three things happen. Senior and asset-based lenders gain a clearer, better-evidenced view of the earnings and the security. A dedicated IP-backed facility becomes available against assets that were previously unbankable. And a seller, shown that their intangible value has been properly recognised, is more willing to leave money in a loan note behind confident buyers. Documented intangible value converts directly into borrowing capacity — and borrowing capacity is what lets you keep your own cash contribution modest and your control intact.
This is the same evidence base a buyer's diligence tests and a seller builds to defend their multiple. It is the reason to catalogue what a target really owns before, not after, you arrange the funding — and it is exactly what a structured pass through The Opagio 12 is designed to surface. For how this fits the broader buy-and-build case, see grow by acquisition.
The target's intangibles are not just what you are buying — they are part of how you fund the purchase. Documented, valued, and evidenced, they widen every layer of the stack: better serviceability, an IP-backed facility, and a seller confident enough to wait. Undocumented, they are worth nothing to a lender.
Financing an acquisition is an assembly job, not a savings target. Start from the price, work down through the layers — senior debt against cash flow, asset-based lending against what the business owns, IP-backed lending against the intangibles, a vendor loan note and deferred consideration from the seller, an earn-out from future earnings — and see how little of your own cash the deal actually requires once the stack is built properly. Then pressure-test it: can the normalised business service the debt, and have you funded the real cash-to-complete, not just the headline equity?
The acquirers who fund deals others cannot are the ones who can evidence value others cannot see. Before you approach a lender or a seller, know what the target really owns — including the intangible assets its accounts never showed — because that evidence is what widens your options and protects your cash.
If you are earlier in the process, start with the buy a business hub and work through how to value a business you want to buy. When you are ready to see the intangible assets that make a target bankable — and fund the deal against them — book a demo of Opagio Intangibles and see what your diligence, and your lender, will find. To go deeper on the product, see Opagio Intangibles.
For the questions buyers ask most, see how much money you need to buy a business and whether a target's assets can be used as security for acquisition finance, plus the full FAQ on financing an acquisition.
Ivan Gowan is Founder and CEO of Opagio. He spent twenty-five years in fintech, including at IG Group, before building Opagio to help operators see, evidence, and finance the intangible value in the businesses they build and buy. Meet the team.
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