{"id":39670,"date":"2022-12-21T11:49:11","date_gmt":"2022-12-21T11:49:11","guid":{"rendered":"https:\/\/swoopfunding.com\/au\/blog\/how-to-finance-a-business-acquisition\/"},"modified":"2025-03-17T13:08:21","modified_gmt":"2025-03-17T13:08:21","slug":"how-to-finance-a-business-acquisition","status":"publish","type":"blog","link":"https:\/\/swoopfunding.com\/au\/acquire-a-business\/how-to-finance-a-business-acquisition\/","title":{"rendered":"How to finance a business acquisition"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"39670\" class=\"elementor elementor-39670\" data-elementor-post-type=\"blog\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-37299c8e elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"37299c8e\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-5a0445da\" data-id=\"5a0445da\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-9a5cc21 elementor-widget elementor-widget-ucaddon_aivoov_player\" data-id=\"9a5cc21\" data-element_type=\"widget\" data-widget_type=\"ucaddon_aivoov_player.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\n\n\t\t\t<div class=\"aivoov-player-block\">\n\t<div class=\"read_this\">Read this article to me<\/div>\n\t\t\t<style>\n\t\t\t.plyr__controls .plyr__controls__item:first-child{\n\t\t\t\tbackground:#2e9c8e !important;\n\t\t\t}\n\t\t\t:root{\n\t\t\t--plyr-color-main:#2e9c8e;\n\t\t\t--plyr-audio-controls-background:#f0f2f4;\n\t\t\t--plyr-audio-control-color:#546a7b;\n\t\t\t}\n\t\t\t[data-plyr=\"mute\"]{color:#2e9c8e !important}\n\t\t\t.aivoov-text-color{color:#546a7b}\n\t\t<\/style> \n\t\t<div class=\"audio_player\">\n\t\t<audio class=\"js-player\" controls=\"\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/428a1e91-ee4b-49fc-8153-07579936867c.mp3\" type=\"audio\/mp3\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/428a1e91-ee4b-49fc-8153-07579936867c.mp3\" type=\"audio\/ogg\" \/>\n\t\t<\/audio> \n\t\t\t\t <div class=\"powerd_by aivoov-text-color\"><p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/aivoov.com\/?um_source=plugin_powered_by\" style=\"color: inherit;\">Powered by AiVOOV<\/a><\/p><\/div>\n\t\t \n\t\t<\/div>\n\t\t<\/div>\n\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-5982b20a elementor-widget elementor-widget-text-editor\" data-id=\"5982b20a\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p><span style=\"font-weight: 400;\">Often, the purchaser of a business will give the seller a Letter of Intent to purchase the business that is contingent on being able to secure financing. If you get to this step and you are not able to bootstrap the business financing all by yourself, there are a number of options available to you. For most buyers of existing businesses, the goal of financing is not only to acquire the business, but to make sure you have the flexibility and resources to grow.<\/span><\/p><h2><b>What is a business acquisition?<\/b><\/h2><p><span style=\"font-weight: 400;\">A business acquisition involves one person or entity purchasing a business from another person or entity. This could mean a single person buying a local restaurant franchise from somebody else, or a large manufacturing company taking over the operations and production facilities of a smaller competitor. With <a href=\"https:\/\/swoopfunding.com\/us\/sba-loans\/sba-franchise-loans\/\">SBA franchise loans<\/a> available, this is a popular choice amongst US SMEs. Whether your deal is large or small, simple or complex, chances are it will require some type of outside financing.\u00a0<\/span><\/p><h2><b>How can I finance a business acquisition?<\/b><\/h2><p><span style=\"font-weight: 400;\">When considering how to buy a business, the simplest way is to fund it out of your own savings or to access personal borrowing facilities such as a <a href=\"https:\/\/swoopfunding.com\/us\/business-loan-calculator\/heloc-payoff-calculator\/\">home equity line of credit<\/a>. But for many business owners, these sources will not be enough. You may need to consider raising equity from investors or taking on some type of <a href=\"https:\/\/swoopfunding.com\/ca\/business-loans\/\">business loan<\/a>. These are the same basic options used by large enterprises when they make an acquisition.<\/span><\/p><h3><b>Acquisition finance<\/b><\/h3><p><span style=\"font-weight: 400;\">Many business acquisitions are financed by a combination of personal money, equity, and debt. Finding the optimal financing structure is important so you can have a smooth ownership transition and position your new company for growth while maintaining healthy personal finances in the process.<\/span><\/p><h3><b>Equity investment<\/b><\/h3><p><span style=\"font-weight: 400;\">Equity represents ownership in a business. Often, the owner and operator of a small business is also its first equity investor using his or her own savings. Another source of equity investment could be friends, family, or a professional private equity or venture capital firm. Generally, the more equity that is invested in acquiring a business, the less debt that will be required. For example, if you were able to raise $400,000 in equity to acquire a $1 million business, you would then need to borrow $600,000 to complete the transaction.<\/span><\/p><p><span style=\"font-weight: 400;\">Lenders like to see that the business owner and operator has an equity stake in the business. That means they\u2019ll have put their own capital at risk and have something of their own to lose. This usually signals to the lender that they have a stronger commitment that might contribute to a more successful business acquisition.<\/span><\/p><h3><b>Senior debt<\/b><\/h3><p><span style=\"font-weight: 400;\">Senior debt refers to the loan provided by the main lender. This loan is usually secured against the assets of the business, such as real estate, inventory, or equipment. The loan is called \u2018senior\u2019 because, in the event of the failure of the business, the senior lender has first call on those assets in order to recover their investment.<\/span><\/p><p><span style=\"font-weight: 400;\">The amount of money a senior lender will loan is often tied directly to the expected earnings of the business. This is typically expressed as a multiple of the company\u2019s earnings before interest, taxes, depreciation and <a href=\"https:\/\/swoopfunding.com\/us\/business-glossary\/amortisation\/\">amortization<\/a>, or <a href=\"https:\/\/swoopfunding.com\/us\/business-loan-calculator\/ebitda-calculator\/\">EBITDA<\/a>.\u00a0<\/span><\/p><p><span style=\"font-weight: 400;\">For example, a lender might be willing to extend a loan equal to three times annual EBITDA. In the example above, where the business operator has $400,000 of equity and wishes to purchase a business for $1,000,000, the business would need annual EBITDA of $200,000 in order to qualify for a loan of $600,000.<\/span><\/p><p><span style=\"font-weight: 400;\">Most senior lenders will make loans with relatively strict terms, requiring monthly payments and other covenants, such as meeting certain ongoing financial performance criteria.<\/span><\/p><h3><b>Vendor financing<\/b><\/h3><p><span style=\"font-weight: 400;\">It\u2019s actually quite common for the seller of a business to provide some of the financing for its acquisition using what\u2019s called a vendor take-back or vendor note. These deals allow the person acquiring the business to pay the seller over a period of time with interest.<\/span><\/p><p><span style=\"font-weight: 400;\">For example, in the situation above, if the buyer of a $1 million business had $400,000 of equity and the business had enough earnings to qualify for a $400,000 loan from a senior lender, the buyer could bridge the final $200,000 of the purchase price using a vendor take-back.<\/span><\/p><p><span style=\"font-weight: 400;\">There are several potential advantages to this approach. Not the least of which is\u00a0 potentially a lower interest rate, more flexibility on the payback schedule, and a seller with a vested interest in a successful transition and the continued success of the business.\u00a0<\/span><\/p><h3><b>Mezzanine financing<\/b><\/h3><p><span style=\"font-weight: 400;\">Sometimes, even when a buyer lines up their equity, a senior lender and a vendor-take back, there is still a funding gap when attempting to acquire a business. This is where <a href=\"https:\/\/swoopfunding.com\/us\/business-loans\/mezzanine-finance\/\">mezzanine financing<\/a> comes in. Because it\u2019s riskier debt for the lender, it generally comes with a higher interest rate. But, in exchange for that, it usually has very flexible repayment terms and can be a valuable part of your overall business financing package.<\/span><\/p><h2><b>How do I find the value of the business acquisition target?<\/b><\/h2><p><span style=\"font-weight: 400;\">Valuing a business can be more art than science, but there are a handful of factors that you should consider \u2014 ones that any equity or debt investor is likely to as well:<\/span><b><\/b><\/p><ul><li aria-level=\"1\"><b>Assets.<\/b><span style=\"font-weight: 400;\"> One of the most concrete elements of a business\u2019s value is the assets that it owns. If the business owns things like real estate, equipment, inventory, or intellectual property, the value of these assets (minus any debts) can help establish its <a href=\"https:\/\/swoopfunding.com\/us\/business-glossary\/net-asset-value\/\">net asset value<\/a>.<\/span><\/li><\/ul><ul><li aria-level=\"1\"><b>Earnings.<\/b><span style=\"font-weight: 400;\"> How much the business earns is also very important in establishing its value. Earnings mean how much the business keeps after paying all of its expenses (including the owner\u2019s salary) and other costs. The actual value of the business may be based on multiplying its annual earnings. Generally speaking, the faster the earnings are growing, the more times you might multiply those earnings to arrive at a valuation.\u00a0<\/span><\/li><li aria-level=\"1\"><b>Comparables.<\/b><span style=\"font-weight: 400;\"> One of the ways to contextualize valuations is to look at similar business deals. For example, you might see that businesses in mature and slow-growing industries are changing hands at just a few times their earnings, while fast-growing tech startups change hands at double-digit multiples. You might also see that some industries have lower-risk and long-established players, while others see new upstarts frequently come and go. You\u2019ll want to factor those risks into your assessment.<\/span><\/li><\/ul><h2><b>How do I find funding for the business acquisition?<\/b><\/h2><p><span style=\"font-weight: 400;\">There are at least three general sources of business acquisition funding that you can explore:<\/span><\/p><ul><li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Personal sources, such as your own savings and friends or family who may wish to invest.<\/span><\/li><li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Equity investors, such as private equity or venture capital firms and angel investor groups.<\/span><\/li><li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Debt investors ranging from private firms who specialize in business acquisition finance, to the major Canadian banks and credit unions.<\/span><\/li><\/ul><h2><b>Get started with Swoop<\/b><\/h2><p><span style=\"font-weight: 400;\">The business acquisition funding landscape can be dizzying, but Swoop brings it all into focus. Let us scan the available offers and bring the best options to you. <\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t<div class=\"elementor-element elementor-element-d472d55 e-flex e-con-boxed e-con e-parent\" data-id=\"d472d55\" data-element_type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t<div class=\"elementor-element elementor-element-b9d7bb7 e-con-full e-flex e-con e-child\" data-id=\"b9d7bb7\" data-element_type=\"container\">\n\t\t\t\t<div class=\"elementor-element elementor-element-f5bef82 elementor-align-center elementor-widget elementor-widget-button\" data-id=\"f5bef82\" data-element_type=\"widget\" data-widget_type=\"button.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<div class=\"elementor-button-wrapper\">\n\t\t\t\t\t<a class=\"elementor-button elementor-button-link elementor-size-sm\" href=\"https:\/\/app.swoopfunding.com.au\/get-started?fundingReason=acquireaBusiness\">\n\t\t\t\t\t\t<span class=\"elementor-button-content-wrapper\">\n\t\t\t\t\t\t\t\t\t<span class=\"elementor-button-text\">Get started<\/span>\n\t\t\t\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Often, the purchaser of a business will give the seller a Letter of Intent to purchase the business that is contingent on being able to secure financing. If you get to this step and you are not able to bootstrap the business financing all by yourself, there are a number of options available to you. [&hellip;]<\/p>\n","protected":false},"author":29,"featured_media":39776,"comment_status":"closed","ping_status":"closed","template":"","category":[1368,1668,1359,1367],"class_list":["post-39670","blog","type-blog","status-publish","has-post-thumbnail","hentry","category-blog","category-business-acquisition","category-funding-resources","category-loans"],"acf":[],"featured_image_urls_v2":{"full":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled.jpg",2560,1704,false],"thumbnail":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-150x150.jpg",150,150,true],"medium":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-300x200.jpg",300,200,true],"medium_large":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-768x511.jpg",768,511,true],"large":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-1024x682.jpg",1024,682,true],"1536x1536":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-1536x1022.jpg",1536,1022,true],"2048x2048":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-2048x1363.jpg",2048,1363,true],"image_blog":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-408x252.jpg",408,252,true],"image_blog_full":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-1775x660.jpg",1775,660,true],"image_podcast":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-397x298.jpg",397,298,true],"image_banking":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-30x20.jpg",30,20,true],"image_blog_internal":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-840x480.jpg",840,480,true],"image_blog_medium":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-1024x500.jpg",1024,500,true],"image_single_banking":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2025\/03\/business-acquisition-featured-scaled-80x53.jpg",80,53,true]},"post_excerpt_stackable_v2":"<p>Often, the purchaser of a business will give the seller a Letter of Intent to purchase the business that is contingent on being able to secure financing. If you get to this step and you are not able to bootstrap the business financing all by yourself, there are a number of options available to you. For most buyers of existing businesses, the goal of financing is not only to acquire the business, but to make sure you have the flexibility and resources to grow.What is a business acquisition?A business acquisition involves one person or entity purchasing a business from another&hellip;<\/p>\n","category_list_v2":"<a href=\"https:\/\/swoopfunding.com\/au\/category\/blog\/\" rel=\"category tag\">Blog<\/a>, <a href=\"https:\/\/swoopfunding.com\/au\/category\/business-acquisition\/\" rel=\"category tag\">Business acquisition<\/a>, <a href=\"https:\/\/swoopfunding.com\/au\/category\/funding-resources\/\" rel=\"category tag\">Funding resources<\/a>, <a href=\"https:\/\/swoopfunding.com\/au\/category\/loans\/\" rel=\"category tag\">Loans<\/a>","author_info_v2":{"name":"Michael David","url":"https:\/\/swoopfunding.com\/au\/author\/michael-david\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/39670","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog"}],"about":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/types\/blog"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/users\/29"}],"replies":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/comments?post=39670"}],"version-history":[{"count":3,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/39670\/revisions"}],"predecessor-version":[{"id":39777,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/39670\/revisions\/39777"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/media\/39776"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/media?parent=39670"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/category?post=39670"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}