How do I finance a business acquisition?
Short Answer
Combine sources into a capital stack: your equity, senior bank debt, asset-based lending, IP-backed lending against intangible assets, and vendor finance such as loan notes or an earn-out.
Full Explanation
Financing an acquisition means assembling a capital stack that the acquired business can safely support. The layers usually include your own equity; senior bank debt secured on the target's assets and cash flows; asset-based lending against receivables, stock and plant; and, in the UK increasingly, IP-backed lending against intangible assets such as patents, software and brands. Sellers frequently provide part of the funding themselves through a vendor loan note or deferred consideration, and an earn-out acts as contingent finance, paying more only if the business performs. Lenders size their support against serviceable cash flow and the quality of available security, so a target with well-documented intangible assets can unlock more, and cheaper, funding. Deal structure interacts with financing: an asset purchase may give a lender cleaner security, while a share purchase may preserve valuable contracts. Getting the mix right — enough leverage to make the returns work without over-burdening the business — is central to buying well. See [how to finance a business acquisition](/insights/how-to-finance-a-business-acquisition). Where the target's intangible assets can serve as security, [IP-backed lending](/ip-lending) is worth exploring.
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